Information contained herein is subject to completion or amendment. The Notes
offered hereby may not be sold nor may offers to buy be accepted prior to the
completion of the information contained in this prospectus supplement. This
prospectus supplement and accompanying prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
the Notes in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
PRELIMINARY PROSPECTUS DATED
JUNE 26, 1995, SUBJECT TO COMPLETION
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 26, 1995)
$50,000,000
[INSERT LOGO]
% SENIOR NOTES DUE JULY 1, 2000
------------------------
Interest on the % Senior Notes Due July 1, 2000 (the 'Notes') is payable
semi-annually on July 1 and January 1 of each year, beginning January 1, 1996.
The Notes will not be redeemable prior to maturity. The Notes will be issuable
and transferable in fully registered form, in denominations of $1,000 and
integral multiples thereof. See 'Descriptions of Notes.'
The Notes will be represented by one or more permanent Global Notes
registered in the name of a nominee of The Depository Trust Company, as
Depositary. Interests in the Global Notes will be shown on, and transfers
thereof will be effected only through, records maintained by the Depositary and
its participants. Except a described under 'Description of Notes -- Book Entry
System,' owners of beneficial interests in the Global Notes will not be entitled
to receive Notes in definitive form and will not be considered holders of Notes.
Settlement for the Notes will be made in immediately available funds. The Notes
will trade in the Depositary's Same-Day Funds Settlement System until maturity
and secondary market trading activity in the Notes will therefore settle in
immediately available funds. See 'Description of Notes -- Same-Day Settlement
and Payment.'
------------------------
THE NOTES ARE NOT DEPOSITS, SAVINGS ACCOUNTS OR OTHER OBLIGATIONS OF A BANK OR
SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER FEDERAL OR STATE AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
<S> <C> <C> <C>
Per Note.................................... % % %
Total....................................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, from date of issuance.
(2) Sovereign has agreed to indemnify the several Underwriters against certain
liabilities under the Securities Act of 1933. See 'Underwriting.'
(3) Before deduction of expenses payable by Sovereign estimated at $100,000.
------------------------
The Notes are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject offers in whole or in part. It is expected that the Notes will be
delivered in book-entry form only on or about July , 1995 through the
facilities of the Depositary.
------------------------
MERRILL LYNCH & CO. MONTGOMERY SECURITIES
------------------------
The date of this Prospectus Supplement is June , 1995.
<PAGE>
[INSERT MAP HERE]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
SOVEREIGN
Sovereign Bancorp, Inc. ('Sovereign' or the 'Corporation') is a
Pennsylvania unitary thrift holding company headquartered in a suburb of
Reading, Pennsylvania. Sovereign's principal bank subsidiary is Sovereign Bank,
F.S.B., a federal savings bank (the 'Bank'). At March 31, 1995, Sovereign and
its subsidiaries had total unaudited consolidated assets, deposits, and
stockholders' equity of $6.8 billion, $5.0 billion and $312.2 million,
respectively. Based on total assets at March 31, 1995, Sovereign is the largest
thrift holding company and the sixth largest financial institution headquartered
in Pennsylvania.
Sovereign's primary business consists of attracting deposits from its
network of 126 community banking offices, located in Pennsylvania, New Jersey
and Delaware, and originating residential mortgage loans and home equity lines
of credit in those communities. The Bank originates mortgage loans through its
community banking offices, commissioned employees who conduct business out of
loan production offices and a network of independent mortgage bankers and
brokers. Substantially all loan underwriting is performed by the Bank. Based on
its origination of $1.4 billion of adjustable rate mortgages during the year
ended December 31, 1994, Sovereign believes it is the leading adjustable rate
mortgage lender in the Pennsylvania and New Jersey market areas.
Sovereign's operating strategy emphasizes consistent profitability and
growth. Accordingly, Sovereign seeks to (1) maintain superior asset quality
through emphasis on the origination of single family mortgage loans; (2) limit
interest rate risk through the origination of adjustable rate mortgages for
retention in its portfolio; (3) maintain low overhead expenses and high employee
productivity; and (4) encourage a strong sales and service culture.
Sovereign's principal executive offices are located at 1130 Berkshire
Boulevard, Wyomissing, Pennsylvania 19610 and its telephone number is (610)
320-8400.
RECENT DEVELOPMENTS
RECENT OPERATING RESULTS
Sovereign reported net income of $12.1 million for the three-month period
ended March 31, 1995, compared to $10.9 million for the three-month period ended
March 31, 1994, an increase of 11 percent. Net income per share for the three
months ended March 31, 1995 was $.25 (as adjusted for the 5% stock dividend paid
on April 11, 1995), compared to $.23 for the three months ended March 31, 1994.
Return on average total assets and return on average equity were .70% and
15.14%, respectively, for the three-month period ended March 31, 1995.
Net interest income for the three-month period ended March 31, 1995 was
$42.7 million compared to $36.4 million for the same period in 1994. The
increase is attributable to an increase in balance sheet growth resulting from
recent acquisitions. Sovereign's interest rate spread (the difference between
the yield on total assets and the cost of total liabilities) was 2.50% for the
three-month period ended March 31, 1995 compared to 2.97% for the same period in
1994. The interest rate spread contracted due to the delay in repricing of
discounted introductory rate adjustable loans.
The provision for possible loan losses was $250,000 for the three-month
period ended March 31, 1995. At March 31, 1995, Sovereign's non-performing
assets were $38.4 million compared to $40.5 million at December 31, 1994. The
ratio of non-performing assets to total assets was .56% at March 31, 1995
compared to .62% at December 31, 1994. The ratio of the allowance for possible
loans losses to non-performing loans was 123.77% at March 31, 1995 compared to
114.11% at December 31, 1994.
Total other expenses were $28.8 million for the three-month period ended
March 31, 1995 compared to $20.5 million for the same period in 1994. The ratio
of general and administrative expenses to average assets for the three-month
period ended March 31, 1995 was 1.50% compared to 1.59% for the same period in
1994. This decrease in the expense ratio is the result of efficiencies realized
from recent acquisitions.
S-3
<PAGE>
PREFERRED STOCK ISSUANCE
On May 17, 1995, Sovereign issued 2,000,000 shares of 6 1/4% Cumulative
Convertible Preferred Stock, Series B ($50 liquidation preference) (the 'Series
B Preferred Stock'), at a public offering price of $50 per share, resulting in
net proceeds to the Company of approximately $97,000,000. See 'Capitalization.'
COLLECTIVE TRANSACTION
On April 21, 1995, the Bank completed its transaction with Collective Bank
('Collective') pursuant to which Collective assumed the deposit liabilities and
purchased certain assets associated with seven offices of the Bank located in
southern New Jersey (six of which were acquired from Berkeley) with total
deposits of approximately $106.7 million. Also pursuant to the agreement, the
Bank assumed approximately $7.0 million in deposit liabilities associated with
Collective's Wilmington, Delaware branch office. In connection with the
transaction, each party paid the other party a deposit premium of 7.5% of the
respective deposit liabilities assumed. As a result of this transaction,
Sovereign reduced the intangible incurred in connection with the Berkeley
transaction by approximately $5.9 million.
COLONIAL ACQUISITION
On March 23, 1995, Sovereign and Colonial State Bank ('Colonial'), a New
Jersey chartered commercial bank with one banking office located in Freehold,
New Jersey, executed an agreement pursuant to which Sovereign will acquire
Colonial for approximately $6.25 million in cash. As of December 31, 1994,
Colonial had approximately $43.8 million in assets, $40.5 million in deposit
liabilities and shareholders' equity of $3.3 million. The Colonial transaction
is subject to certain conditions, including regulatory approval, and is expected
to close in the third quarter of 1995.
USE OF PROCEEDS
Sovereign intends to contribute a substantial portion of the net proceeds
of this offering to the bank subsidiary to be created in connection with the
Colonial acquisition. Such bank subsidiary will use the net proceeds contributed
to it for general corporate purposes, including the expansion of Colonial's
retail banking activities. See 'Recent Developments.'
S-4
<PAGE>
CONSOLIDATED SUMMARY FINANCIAL DATA
The following tables set forth certain historical consolidated summary
financial data of Sovereign and its subsidiaries, which should be read in
conjunction with, and is qualified by reference to, the more detailed financial
and other information included in the documents incorporated herein by
reference. See 'Incorporation of Certain Documents By Reference' in the
Prospectus, including specifically Sovereign's Annual Report on Form 10-K for
the year ended December 31, 1994. The following data do not reflect the Colonial
or Collective transactions. The acquisition of Berkeley Federal Bank & Trust,
FSB on January 1, 1995 is included in the data for the three months ended March
31, 1995. See 'Recent Developments.'
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY STATEMENT OF OPERATIONS
Total interest income........................ $ 111,409 $ 76,693 $ 354,141 $ 282,790 $ 199,431 $ 182,015 $ 176,870
Total interest expense....................... 68,673 40,332 198,741 153,318 118,585 125,326 130,736
--------- --------- --------- --------- --------- --------- ---------
Net interest income.......................... 42,736 36,361 155,400 129,472 80,846 56,689 46,134
Provision for possible loan losses........... 250 1,537 4,100 8,650 10,080 6,796 8,732
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for
possible loan losses........................ 42,486 34,824 151,300 120,822 70,766 49,893 37,402
--------- --------- --------- --------- --------- --------- ---------
Other income................................. 4,867 3,177 14,554 15,167 10,965 5,083 4,472
Other expenses............................... 28,792 20,529 90,989 77,377 47,036 33,460 29,711
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and cumulative
effect of change in accounting principle.... 18,561 17,472 74,865 58,612 34,695 21,516 12,163
Income tax provision......................... 6,431 6,546 28,467 22,998 15,057 9,534 5,458
--------- --------- --------- --------- --------- --------- ---------
Income before cumulative effect of change in
accounting principle........................ 12,130 10,926 46,398 35,614 19,638 11,982 6,705
Cumulative effect of change in accounting
principle................................... -- -- -- 4,800 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income................................... $ 12,130 $ 10,926 $ 46,398 $ 40,414 $ 19,638 $ 11,982 $ 6,705
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings per share
Before cumulative effect of change in
accounting principle (1).................. $ .25 $ .23 $ .95 $ .73 $ .53 $ .39 $ .23
After cumulative effect of change in
accounting principle (1).................. .25 .23 .95 .84 .53 .39 .23
Dividends per share (1)...................... .0219 .0353 .1112 .1043 .0855 .0608 .0444
Dividend payout ratio........................ 8.76% 18.35% 11.70% 14.29% 16.13% 15.59% 19.30%
PERFORMANCE RATIOS
Return on average equity..................... 15.14% 16.07% 16.47% 14.77% 13.51% 10.40% 6.35%
Return on average risk-adjusted assets (2)... 1.59 1.89 1.77 1.66 1.44 1.09 .64
Return on average total assets............... .70 .88 .84 .81 .75 .61 .37
Interest rate spread (3)..................... 2.50 2.97 2.82 2.96 3.10 2.86 2.56
General and administrative expenses to
average total assets........................ 1.50 1.59 1.53 1.68 1.72 1.65 1.64
Earnings to fixed charges (4)
Including interest on deposits.............. 1.27x 1.43x 1.38x 1.38x 1.29x 1.17x 1.09x
Excluding interest on deposits.............. 1.96x 2.18x 1.97x 2.29x 2.58x 2.13x 1.50x
AT DECEMBER 31,
AT MARCH -----------------------------------------------------
31, 1995 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA
Total assets.................................................. $6,803,580 $6,564,082 $4,877,166 $3,699,084 $2,274,702 $1,871,053
Loans......................................................... 4,421,422 4,350,898 2,898,014 2,337,382 1,437,247 1,329,177
Allowance for possible loan losses............................ 35,669 36,289 33,099 26,562 13,198 8,823
Mortgage-backed securities.................................... 1,799,113 1,653,042 1,468,403 847,085 582,049 330,281
Goodwill and other intangibles................................ 129,194 64,553 30,437 18,457 7,067 4,254
Investment securities......................................... 225,269 250,926 220,901 154,271 62,012 79,219
Deposits...................................................... 5,007,649 4,027,119 3,183,107 2,961,058 1,815,679 1,396,748
Borrowings.................................................... 1,414,460 2,162,587 1,367,100 427,591 285,059 339,056
Stockholders' equity.......................................... 312,233 303,900 259,121 220,419 137,259 106,458
Shares outstanding at end of period (in thousands) (5)........ 45,278 45,567 41,357 40,682 23,898 19,906
Book value per share at end of period......................... 6.57 6.35 5.50 4.76 3.92 3.75
Tangible book value per share at end of period................ 3.85 5.00 4.86 4.36 3.72 3.60
Share price at end of period.................................. 9 7 3/8 11 1/4 6 3/8 3 1/4 1 1/2
CAPITAL RATIOS (6)
Stockholders' equity to total assets (7)...................... 4.59% 4.63% 5.31% 5.96% 6.03% 5.69%
Tangible equity to tangible assets (7)........................ 2.74 3.75 4.72 5.49 5.74 5.47
ASSET QUALITY
Residential real estate loans to total loans.................. 98.22% 98.16% 98.29% 96.59% 93.39% 92.04%
Nonperforming assets to total assets.......................... .56 .62 .75 1.15 1.16 1.40
Allowance for possible loan losses to total loans............. .81 .83 1.12 1.11 .92 .66
Allowance for possible loan losses to nonperforming assets.... 92.14 88.24 89.24 61.91 49.00 33.75
Allowance for possible loan losses to nonperforming loans..... 123.77 114.11 136.97 116.72 85.18 53.23
Net charge-offs to average total loans........................ .079 .155 .084 .237 .179 .314
</TABLE>
- ------------------
(1) All per share data have been adjusted to reflect all stock dividends and
stock splits including the 5% stock dividend declared on February 22, 1995
and paid on April 11, 1995.
(2) Net income divided by average risk-adjusted assets (total assets adjusted
for credit risk pursuant to Office of Thrift Supervision ('OTS')
regulations).
(3) Represents the difference between the yield on total assets and the costs of
total liabilities and stockholders' equity.
(4) The ratio of earnings to fixed charges has been computed by dividing income
before taxes plus fixed charges by fixed charges. Fixed charges represent
interest expense (ratios are presented both including and excluding interest
on deposits) and amortization of debt.
(5) Number of shares outstanding at end of period has not been restated for
stock dividends.
(6) For capital ratios relating to the Bank, see 'Capitalization.'
(7) The March 31, 1995 ratios do not reflect the issuance on May 17, 1995 of
2,000,000 shares of Series B Preferred Stock. See 'Capitalization.'
S-5
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Sovereign as of March
31, 1995, and as adjusted as of such date to give effect to (i) the issuance and
sale of the Series B Preferred Stock on May 17, 1995 and (ii) the issuance of
the Notes offered by this Prospectus Supplement and the accompanying Prospectus.
This capitalization table should be read in conjunction with the financial
statements and related notes incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1995
------------------------
HISTORICAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-Term Debt
FHLB advances, maturing May 1996 to May 1998......................................... $ 133,160 $ 133,160
6.75% subordinated debentures, due 2000.............................................. 49,387 49,387
8.50% subordinated debentures, due 2002.............................................. 19,412 19,412
8.00% subordinated debentures, due 2003.............................................. 48,838 48,838
% Notes offered hereby........................................................... -- 50,000
----------- -----------
Total Long-Term Debt.............................................................. 250,797 300,797
----------- -----------
Stockholders' Equity
Preferred Stock: 7,500,000 shares authorized; 6 1/4% Cumulative, Series B; $50
liquidation preference; 2,000,000 shares issued................................... -- 100,000
Common stock, no par value; 100,000,000 shares authorized and 45,742,791(1) issued at
March 31, 1995.................................................................... 226,191 226,191
Unallocated Common Stock held by ESOP; 465,000(1) shares at
March 31, 1995.................................................................... (4,195) (4,195)
Unrecognized loss on investment and mortgage-backed securities available for sale.... (138) (138)
Retained earnings.................................................................... 90,375 90,375
----------- -----------
Total stockholders' equity........................................................... 312,233 399,733
----------- -----------
Total Long-Term Debt and Stockholders' Equity..................................... $ 563,030 $ 713,030
----------- -----------
----------- -----------
</TABLE>
- ------------------
(1) Number of shares has not been restated for stock dividends.
The following table sets forth (i) historical capital ratios of Sovereign
and the Bank at March 31, 1995, (ii) pro forma capital ratios for Sovereign and
the Bank after giving effect to the issuance of the Series B Preferred Stock,
the issuance of the Notes, and the contribution of a total of $50,000,000 in
proceeds to the Bank, and (iii) existing regulatory requirements. The following
data do not reflect the Colonial or Collective transactions. See 'Recent
Developments.'
<TABLE>
<CAPTION>
SOVEREIGN(1) THE BANK
---------------------- ---------------------- REGULATORY
ACTUAL PRO FORMA ACTUAL PRO FORMA REQUIREMENT
--------- ----------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Tangible capital to tangible assets...................... 2.78% 4.30% 4.27% 5.02% 3.00%
Leverage (core) capital to tangible assets............... 2.78 4.30 4.27 5.02 1.50
Leverage (core) capital to risk-adjusted assets.......... 5.90 9.12 9.21 10.84 4.00
Risk-based capital to risk-adjusted assets............... 10.60 13.83 10.14 11.76 8.00
</TABLE>
- ------------------
(1) OTS capital regulations do not apply to thrift holding companies. Ratios for
Sovereign have been computed as if OTS regulations applied to Sovereign.
S-6
<PAGE>
DESCRIPTION OF NOTES
The Notes will be issued under the Senior Debt Indenture, dated as of
February 1, 1994 (the 'Senior Indenture'), between Sovereign and Harris Trust
and Savings Bank, as trustee (the 'Trustee'). A copy of the Senior Indenture is
filed as an exhibit to the Registration Statement to which this Prospectus
Supplement and the Prospectus relate and the terms of the Senior Indenture are
more fully described in the Prospectus. The following description of the
particular terms of the Notes offered hereby (referred to in the accompanying
Prospectus as the 'Debt Securities') and of the Senior Indenture supplements
and, to the extent inconsistent therewith, replaces the descriptions of the
general terms and provisions of the Debt Securities and of the Senior Indenture
as set forth in the Prospectus, to which descriptions reference is hereby made.
The statements herein concerning the Notes and the Senior Indenture do not
purport to be complete and are qualified by reference to the accompanying
Prospectus and the Senior Indenture. All capitalized terms used but not defined
herein shall have the meanings assigned to them in the Prospectus.
GENERAL
The Notes will be unsecured, will rank on a parity with all Senior Debt of
Sovereign and will be senior in right of payment to all Subordinated Debt
Securities of Sovereign. The Senior Indenture does not contain any limitation on
the issuance of additional Senior Debt Securities or Subordinated Debt
Securities of Sovereign. Sovereign expects from time to time to incur additional
Senior Debt and Subordinated Debt Securities.
The Notes will be limited to $50,000,000 aggregate principal amount. The
Notes will be denominated in U.S. dollars and payments of principal of and
interest on the Notes will be in U.S. dollars. The Notes will be issued only in
fully registered form, without coupons, in denominations of $1,000 and integral
multiples thereof. Upon issuance, the Notes will be represented by the Global
Security registered in the name of the nominee of The Depository Trust Company,
New York, New York (the 'Depositary'). See 'Book-Entry System' below. The Notes
will mature on July 1, 2000 (the 'Maturity Date'). The Trustee will serve as
Security Registrar and Paying Agent for the Notes.
INTEREST
The Notes will bear interest at the rate per annum shown on the front cover
of this Prospectus Supplement from July __, 1995 or from the most recent
Interest Payment Date to which interest has been paid or provided for, payable
semi-annually on July 1 and January 1 of each year (each an 'Interest Payment
Date'), commencing January 1, 1996, to the person in whose name the Notes (or
any predecessor Note) are registered at the close of business on the preceding
June 15 or December 15, as the case may be. Interest on the Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
PAYMENT
Payment of the principal of and interest on the Global Security
representing the Notes will be made on each Interest Payment Date and at
maturity by the Trustee as Paying Agent by wire transfer of immediately
available funds to a separate account of the Depositary or its nominee; provided
that, in the case of payments made at maturity of such Global Security, the
Global Security is presented to the Trustee in time for the Trustee to make such
payments in accordance with its normal procedures. Payments to beneficial owners
of the Notes will be made through the Depositary and its participants. See
'Book-Entry System' below.
REDEMPTION
The Notes will not be redeemable by Sovereign or the holders prior to the
Maturity Date and will not be entitled to the benefit of any sinking fund.
Sovereign may at any time repurchase Notes at any price in the open market or
otherwise. Notes so purchased by Sovereign may be held or resold or, at the
discretion of Sovereign, may be surrendered to the Trustee for cancellation.
Sovereign may, at its
S-7
<PAGE>
option and subject to the conditions set forth in the Senior Indenture,
discharge certain of its obligations under the Senior Indenture and defease the
Notes by depositing cash or certain Eligible Instruments with the Trustee in an
amount sufficient to pay all installments of interest on and the principal of
the Notes when due. See 'DESCRIPTION OF DEBT SECURITIES -- Defeasance' in the
accompanying Prospectus.
EVENTS OF DEFAULT
The events of default under the Notes are described in the Prospectus under
'DESCRIPTION OF DEBT SECURITIES -- Events of Default.'
HOLDING COMPANY STRUCTURE
Sovereign is a corporate entity separate from its subsidiary banks.
Accordingly, the right of Sovereign, and thus the holders of the Notes, to share
in the distribution of the assets of any subsidiary upon the subsidiary's
liquidation or recapitalization will be subject to the prior claims of the
subsidiary's creditors (including in the case of Sovereign's bank subsidiaries,
their depositors), except to the extent that Sovereign may itself be a creditor
with recognized claims against the subsidiary. The Senior Indenture does not
limit the total indebtedness that either Sovereign or any of it subsidiaries may
incur.
Sovereign's primary source of funds for the payment of principal and
interest on the Notes is dividends from its principal banking subsidiaries. From
time to time while the Notes are outstanding, Sovereign's banking subsidiaries
may be subject to regulatory or contractual constraints that restrict their
ability to pay dividends to Sovereign. See 'SUPERVISION AND REGULATION --
Restrictions on Capital Distributions' in the accompanying Prospectus for a
discussion of regulatory and other restrictions on the ability of the subsidiary
banks to pay dividends to Sovereign.
BOOK-ENTRY SYSTEM
Upon issuance, all Notes will be represented by a single Global Security
issued in registered form. Such Global Security representing the Notes will be
deposited with, or on behalf of, the Depositary and registered in the name of a
nominee of the Depositary. The Depositary has advised Sovereign that the
Depositary is a limited-purpose trust company organized under the law of the
State of New York, a 'banking organization' within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a 'clearing corporation'
within the meaning of the New York Uniform Commercial Code, and a 'clearing
agency' registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. The Depositary was created to hold securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic,
computerized, book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations, and certain other
organizations, some of whom (and/or their representatives) own the Depositary.
Access to the Depositary's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly. The
rules applicable to the Depositary are on file with the Securities and Exchange
Commission.
Ownership of beneficial interests in the Global Security will be limited to
institutions that have accounts with the Depositary or its nominee
('participants') or persons that may hold interests through such participants.
Ownership of beneficial interests in the Global Security by participants will
only be evidenced by, and the transfer of that ownership interest will be
effected only through, records maintained by the Depositary or its nominee, as
the case may be. Ownership of beneficial interests in the Global Security by
persons that hold through participants will only be evidenced by, and the
transfer of those ownership interests with such participants will be effected
only through, records maintained by such participants. The laws of some
jurisdictions require that certain purchasers of
S-8
<PAGE>
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to hold or transfer such ownership interests.
Sovereign has been advised by the Depositary that upon the issuance of a
permanent Global Security and the deposit of such permanent Global Security with
the Depositary, the Depositary will immediately credit, on its book-entry
registration and transfer system, the respective principal amounts of the Notes
represented by such permanent Global Security to the accounts of participants.
The accounts to be credited shall be designated by the Underwriters.
Payments of principal of and interest on the Notes represented by any
permanent Global Security registered in the name of or held by the Depositary or
its nominee will be made to the Depositary or its nominee, as the case may be,
as the registered owner and the holder of the permanent Global Security
representing such Notes. Such payments to the Depositary or its nominee, as the
case may be, will be made by the Trustee by wire transfer of immediately
available funds to a separate account of the Depositary or its nominee; provided
that, in the case of payments made at maturity of such Global Security, the
Global Security is presented to the Trustee in time for the Trustee to make such
payments in accordance with its normal procedures. Neither Sovereign nor the
Trustee nor any agent of Sovereign or the Trustee will have any responsibility
or liability for any aspect of the Depositary's records or any participant's
records relating to, or payments made on account of, the Notes or for
maintaining, supervising or reviewing any of the Depositary's records or any
participant's records relating to beneficial interests in the Global Security.
Sovereign has been advised by the Depositary that upon receipt of any
payment of principal of or interest on a permanent Global Security, the
Depositary will immediately credit, on its book-entry registration and transfer
system, accounts of participants with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such permanent Global
Security as shown on the records of the Depositary. Payments by participants to
owners of the Notes held through such participants will be governed by standing
instructions and customary practices as is now the case with securities held for
the accounts of customers in bearer form or registered in 'street name,' and
will be the responsibility of such participants.
No permanent Global Security described above may be transferred except as a
whole by the Depositary to a nominee of the Depositary or to a successor
depositary or by a nominee of the Depositary to the Depositary, another nominee
of the Depositary or to a successor depositary.
Notes represented by a permanent Global Security are exchangeable for
definitive Notes in registered form, of like tenor and of an equal aggregate
principal amount, only if (a) the Depositary notifies Sovereign that it is
unwilling or unable to continue as the Depositary for such permanent Global
Security or if at any time the Depositary ceases to be a clearing agency
registered under the Securities Exchange Act of 1934, (b) Sovereign in its sole
discretion determines that such Notes shall be exchangeable for definitive Notes
in registered form or (c) any event shall have happened and be continuing which,
after notice or lapse of time, or both, would constitute an Event of Default
with respect to the Notes. Any permanent Global Security representing the Notes
that is exchangeable pursuant to the preceding sentence shall be exchangeable in
whole for certificated Notes in registered form, of like tenor and of an equal
aggregate principal amount, in denominations of $1,000 and integral multiples
thereof. Such Notes shall be registered in the name or names of such person or
persons as the Depositary shall instruct the Security Registrar. It is expected
that such instructions will be based upon directions received by the Depositary
from its participants with respect to ownership of the Notes.
Except as provided above, owners of Notes will not be entitled to receive
physical delivery of Notes in definitive form and will not be considered the
holders thereof for any purpose under the Senior Indenture, and no permanent
Global Security representing the Notes shall be exchangeable, except for another
permanent Global Security of like denomination and tenor to be registered in the
name of the Depositary or its nominee. Accordingly, each person owning a Note
must rely on the procedures of the Depositary and, if such person is not a
participant, on the procedures of the participant through which such person owns
its interest, to exercise any rights of a holder under the Senior Indenture. The
Senior Indenture provides that the Depositary, as a holder, may appoint agents
S-9
<PAGE>
and otherwise authorize participants to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action which a holder
is entitled to give or take under the Senior Indenture. Sovereign understands
that under existing industry practices, in the event that Sovereign requests any
action of holders or an owner of a Note desires to give or take any action that
a holder is entitled to give or take under the Senior Indenture, the Depositary
would authorize the participants owning the relevant Notes to give or take such
action and such participants would authorize beneficial owners owning through
such participants to give or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made in immediately available funds. The
Notes will trade in the Depositary's Same-Day Funds Settlement System until
maturity, and therefore the Depositary will require secondary trading activity
in the Notes to be settled in immediately available funds. Secondary trading in
long-term notes and debentures of corporate issuers is generally settled in
clearing-house or next-day funds. No assurance can be given as to the effect, if
any, of settlement in immediately available funds in trading activity in the
Notes.
TAXATION
CERTAIN INCOME TAX CONSIDERATIONS
A holder of Notes may be subject to federal income tax 'backup withholding'
in certain circumstances. Backup withholding may apply to a holder who is a
United States person if the holder, among other things, (i) fails to properly
furnish his social security number or other taxpayer identification number
('TIN') to the payor responsible for backup withholding, (ii) provides such
payor an incorrect TIN, (iii) fails to provide such payor with a certified
statement, signed under penalties of perjury, that the TIN provided to the payor
is correct and that the holder is not subject to backup withholding, or (iv)
fails to report properly interest and dividends on his tax return. Backup
withholding, however, does not apply to payments made to certain exempt
recipients, such as corporations and tax-exempt organizations. The backup
withholding rate is 31% of 'reportable payments,' which generally will include
interest on the Notes. Backup withholding is not an additional tax; withheld
amounts are applied against the holder's federal income tax liability. Holders
generally may avoid backup withholding through delivery to the payor of a
completed Form W-9 (or substitute form) establishing that backup withholding
does not apply.
PENNSYLVANIA CORPORATE LOANS TAX
In general, individuals, partnerships and unincorporated associations who
reside in Pennsylvania and who own Notes, corporate, individual and certain
other Pennsylvania fiduciaries who hold Notes for taxable Pennsylvania
beneficiaries (or who have been provided with funds to purchase Notes for
certain Pennsylvania settlors), and non-Pennsylvania fiduciaries who hold Notes
for Pennsylvania resident non-corporate persons are all subject to the
Pennsylvania Corporate Loans Tax. This tax is presently assessed at the rate of
4 mills ($4.00 per each $1,000.00 of principal amount). Corporate borrowers
(such as Sovereign) are required by law to withhold this tax from interest
payable on their indebtedness.
As a result of payment, through withholding by Sovereign, of the
Pennsylvania Corporate Loans Tax, the Notes should not be subject to any
existing Pennsylvania (county) Personal Property Tax.
Holders of Notes should consult their own tax advisors about all federal,
state and local tax consequences of the purchase and ownership of the Notes.
S-10
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a terms agreement and the
underwriting agreement related thereto (the 'Underwriting Agreement'), Sovereign
has agreed to sell to each of the Underwriters named below, and each of the
Underwriters named below has severally agreed to purchase, the respective
principal amount of Notes set forth opposite its name below. In the Underwriting
Agreement, the several Underwriters have agreed, subject to the terms and
conditions set forth therein, to purchase all of the Notes offered hereby if any
of the Notes are purchased.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- -----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................................... $
Montgomery Securities ..............................................................
-----------
Total................................................................. $50,000,000
-----------
-----------
</TABLE>
The Underwriters have advised Sovereign that they propose initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such price
less a concession not in excess of . % of the principal amount per Note.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of . % of the principal amount per Note on sales to certain other
dealers. After the initial public offering, the public offering price and such
concessions may be changed.
Sovereign has agreed to indemnify each Underwriter against and contribute
toward certain liabilities, including liabilities under the Securities Act of
1933. Sovereign has agreed to reimburse the Underwriters for certain expenses.
The Notes are a new issue of securities with no established trading market.
Sovereign does not intend to apply for listing of the Notes on a national
securities exchange but has been advised by the Underwriters that they presently
intend to act as market makers for the Notes, as permitted by applicable laws
and regulations, but are not obligated to do so and may discontinue any market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the Notes.
Certain of the Underwriters engage in transactions with and perform
services for Sovereign and its subsidiaries in the ordinary course of business.
LEGAL MATTERS
The validity of the Notes will be passed upon for Sovereign by Stevens &
Lee, Reading, Pennsylvania, counsel to Sovereign. Joseph E. Lewis, a director of
the Bank, is a principal of the firm of Stevens & Lee. At December 31, 1994,
certain attorneys at Stevens & Lee and members of their immediate families owned
or had investment discretion with respect to an aggregate of less than 150,000
shares of Common Stock. Certain legal matters will be passed upon for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom, New York, New York.
Skadden, Arps, Slate, Meagher & Flom has performed, and may continue to perform,
services for Sovereign from time to time.
S-11
<PAGE>
PROSPECTUS
- ----------
SOVEREIGN BANCORP, INC.
COMMON STOCK AND COMMON STOCK WARRANTS
DEBT SECURITIES AND DEBT WARRANTS
PREFERRED SHARES AND PREFERRED SHARE WARRANTS
Sovereign Bancorp, Inc. (the 'Corporation' or 'Sovereign') may from time to
time offer (i) shares of its Common Stock, no par value (the 'Common Stock'),
(ii) in one or more series its unsecured debt securities, which may be either
senior (the 'Senior Securities') or subordinated (the 'Subordinated Securities',
the Senior Securities and the Subordinated Securities being referred to
collectively as the 'Debt Securities'), (iii) warrants to purchase the Debt
Securities ('Debt Warrants'), (iv) shares of preferred stock (the 'Preferred
Shares'), (v) warrants to purchase the Preferred Shares ('Preferred Share
Warrants'), and (vi) warrants to purchase Common Stock ('Common Stock Warrants,'
the Debt Warrants, Preferred Share Warrants and Common Stock Warrants being
referred to collectively as the 'Securities Warrants') with an aggregate initial
public offering price (including the exercise price of any Securities Warrants)
of up to $150,000,000 or the equivalent thereof in one or more foreign
currencies or composite currencies, including European Currency Units ('ECU'),
on terms to be determined at the time of sale.
THE COMMON STOCK, DEBT SECURITIES, PREFERRED SHARES AND SECURITIES WARRANTS
(COLLECTIVELY, THE 'OFFERED SECURITIES') MAY BE OFFERED SEPARATELY OR TOGETHER
IN UNITS, IN SEPARATE SERIES, IN AMOUNTS, AT PRICES, AND ON TERMS AND CONDITIONS
TO BE SET FORTH IN A SUPPLEMENT TO THIS PROSPECTUS (A 'PROSPECTUS SUPPLEMENT').
The Senior Securities will rank equally with all other unsubordinated and
unsecured indebtedness of the Corporation. The Subordinated Securities will be
subordinated to all existing and future Senior Debt of the Corporation, as
defined. See 'Description of Debt Securities.'
The Securities Warrants may be issued independently or together with Common
Stock, Debt Securities, or Preferred Shares offered by any Prospectus Supplement
and may be attached to or separate from such Common Stock, Debt Securities, or
Preferred Shares.
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered, such as, where applicable, (i) in the case of
Debt Securities, the specific designation, original issue discount or premium,
aggregate principal amount, currency, denominations, maturity, rate and time of
payment of interest, terms for redemption at the option of the Corporation or
repayment at the option of the holder and the redemption premium (if any), terms
for sinking fund payments, terms for conversion into Common Stock or Preferred
Shares or exchange into capital securities and the initial public offering
price; (ii) in the case of Preferred Shares, the specific title and stated
value, any dividend, liquidation, redemption, conversion, exchange, voting and
other rights, and the initial public offering price; and (iii) in the case of
Securities Warrants, where applicable, the duration, offering price, exercise
price and detachability.
Each of the Offered Securities may be issued separately or together with
Securities Warrants as a unit (a 'Unit'). If any of the Offered Securities are
issued as a Unit, the Prospectus Supplement relating thereto will describe the
specific terms relating to such Unit including, where applicable: (i) if the
Securities Warrant will be detachable from the accompanying Offered Security and
when, if ever, such Securities Warrant may be separately transferred; (ii) the
allocation of the public offering price between the Securities Warrant and the
accompanying Offered Security; (iii) the qualification of the Units and its
composite Offered Securities for trading on any securities exchange or automated
dealers' quotation reporting system, and (iv) any United States federal income
tax considerations relating to the Unit and the Offered Securities comprising
the Unit.
The Prospectus Supplement will also contain information, where applicable,
about certain United States federal income tax considerations relating to, and
any listing on a securities exchange of, the Offered Securities covered by the
Prospectus Supplement.
The Offered Securities may be offered directly by the Corporation to
purchasers, through agents designated from time to time, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Offered Securities, their names, and any applicable fee,
commission, purchase price or discount arrangements with them will be set forth,
or will be calculable from the information set forth, in the Prospectus
Supplement. The Corporation may also issue contracts under which the
counterparty may be required to purchase Common Stock, Debt Securities, or
Preferred Stock. Such contracts would be issued with the Common Stock, Debt
Securities, Preferred Stock, and/or Securities Warrants in amounts, at prices
and on terms to be set forth in a Prospectus Supplement. See 'Plan of
Distribution.'
Except for the Common Stock, the Offered Securities are a new issue of
securities with no established trading market. In the event that Offered
Securities of a series offered hereby are not listed on a national securities
exchange, certain broker-dealers may make a market in the Offered Securities,
but will not be obligated to do so and may discontinue any market making any
time without notice. No assurance can be given that any broker-dealer will make
a market in the Offered Securities of any series or as to the liquidity of the
trading market for the Offered Securities. Any such market making may be
discontinued at any time.
------------------------
THE OFFERED SECURITIES ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK OR NONBANK SUBSIDIARY OF THE CORPORATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, BANK INSURANCE FUND,
SAVINGS ASSOCIATION INSURANCE FUND, OR ANY OTHER GOVERNMENT AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Prospectus may not be used to consummate sales of Offered Securities unless
accompanied by a Prospectus Supplement.
------------------------
The date of this Prospectus is June 26, 1995.
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE CORPORATION, OR ANY UNDERWRITER OR AGENT. THIS PROSPECTUS AND
ANY PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OFFERED SECURITIES IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN OR THEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION OR THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CORPORATION SINCE SUCH DATE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
------------------------
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and in
accordance therewith files proxy statements, reports and other information with
the Securities and Exchange Commission (the 'Commission'). This filed material
can be inspected and copied at the Commission's office at 450 Fifth Street,
N.W., Washington, D.C. 20549 and the Commission's Regional Offices in New York
(75 Park Place, New York, New York 10007) and Chicago (500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511) and copies of such materials can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by the
Corporation are incorporated in this Prospectus by reference and made a part
hereof:
(1) The Corporation's Annual Report on Form 10-K for the year ended
December 31, 1992.
(2) The Corporation's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1993, June 30, 1993, and September 30, 1993.
(3) The Corporation's Current Reports on Form 8-K filed January 29,
1993, February 12, 1993, May 7, 1993, July 6, 1993, August 23,
1993, August 27, 1993, August 30, 1993, September 7, 1993,
September 22, 1993, October 27, 1993, November 12, 1993, February
1, 1994, and March 21, 1994.
(4) The Corporation's Registration Statement on Form 8-A, dated
October 12, 1989, pursuant to which the Corporation registered
certain stock purchase rights under the Exchange Act.
Financial and other information included in the reports incorporated by
reference herein do not reflect stock splits or dividends declared subsequent to
the respective dates of such reports.
Each document or report subsequently filed by the Corporation with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date hereof and prior to the termination of the offering of the
Offered Securities shall be deemed to be incorporated by reference into this
Prospectus and to be a part of this Prospectus from the date of filing of such
document. Any statement contained herein, or in the document all or a portion of
which is incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Registration Statement or this Prospectus.
The Corporation will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference, other than
certain exhibits to such documents. Written requests should be directed to
Sovereign Bancorp, Inc., 1130 Berkshire Boulevard, Wyomissing, Pennsylvania
19610; Attention: Investor Relations Officer (telephone: 610 320-8400).
2
<PAGE>
SOVEREIGN BANCORP, INC.
Sovereign Bancorp, Inc. ('Sovereign' or the 'Corporation') is a
Pennsylvania unitary thrift holding corporation headquartered in a suburb of
Reading, Pennsylvania. Sovereign's subsidiaries consist of Sovereign Bank, a
Federal Savings Bank (the 'Bank') and Sovereign Investment Corporation. At
December 31, 1993, Sovereign and its subsidiaries had total consolidated assets,
deposits, and shareholders' equity of $4.50 billion, $2.84 billion and $220.5
million, respectively. Based on total assets at December 31, 1993, Sovereign is
the largest thrift holding corporation headquartered in Pennsylvania.
The Bank's operating divisions, Sovereign Bank, Bank of Princeton, F.S.,
and the Sovereign Bank of New Jersey, have 79 offices serving southeastern
Pennsylvania and central New Jersey. Sovereign's market area in Pennsylvania
consists of the Counties of Berks, Lancaster, Chester, Montgomery, Schuylkill,
Philadelphia, Northampton, Luzerne, Dauphin, Lehigh and Bucks, and Sovereign's
market area in New Jersey includes Union, Middlesex, Monmouth, Ocean, Mercer and
Somerset Counties.
The Bank originates adjustable and fixed rate, owner occupied, single
family residential mortgages. In addition, the Bank concentrates its efforts on
attracting deposits from the communities it serves and originating adjustable
rate home equity lines of credit to homeowners in those communities. The Bank
also borrows funds to originate mortgage loans and to purchase mortgage-backed
securities.
Sovereign operates in a heavily regulated environment. Changes in laws and
regulations affecting it and its subsidiaries may have an impact on its
operations. See 'Supervision and Regulation.'
The principal executive offices of Sovereign are located at 1130 Berkshire
Boulevard, Wyomissing, Pennsylvania 19610, telephone (610) 320-8400.
HOLDING COMPANY STRUCTURE
Sovereign is a legal entity separate and distinct from its subsidiaries.
Accordingly, the right of Sovereign, and consequently the right of creditors of
Sovereign, to participate in any distribution of the assets or earnings of any
subsidiary is necessarily subject to the prior claims of creditors of the
subsidiary, except to the extent that claims of Sovereign in its capacity as a
creditor may be recognized. The principal source of Sovereign's revenue and cash
flow is dividends from its subsidiaries. See 'Supervision and Regulation --
Restrictions on Capital Distributions' for a discussion of regulatory and other
restrictions on the ability of the subsidiaries to pay dividends to Sovereign.
SUPERVISION AND REGULATION
GENERAL
Sovereign is a 'savings and loan holding company' registered with the
Office of Thrift Supervision (the 'OTS') under the Home Owners' Loan Act (the
'HOLA') and, as such, Sovereign is subject to OTS regulations, examinations,
supervision and reporting. The Bank is subject to examination and comprehensive
regulation by the OTS. The deposits of the Bank are insured by the Savings
Association Insurance Fund (the 'SAIF') of the Federal Deposit Insurance
Corporation (the 'FDIC') and the Bank is subject to FDIC regulation. The Bank is
a member of the Federal Home Loan Bank (the 'FHLB') of Pittsburgh, which is one
of the twelve regional banks comprising the FHLB system. The Bank is also
subject to regulation by the Board of Governors of the Federal Reserve System
with respect to reserves maintained against deposits and certain other matters.
SOVEREIGN
The HOLA prohibits a registered savings and loan holding company from
directly or indirectly acquiring control, including through an acquisition by
merger, consolidation or purchase of assets, of any savings association (as
defined in Section 3 of the Federal Deposit Insurance Act) or any other savings
and loan holding company, without prior OTS approval. In considering whether to
grant
3
<PAGE>
approval for any such transaction, the OTS will take into consideration a number
of factors, including the competitive effects of the transaction, the financial
and managerial resources of the thrift subsidiaries following the transaction,
and the compliance records of such subsidiaries with the Community Reinvestment
Act. Generally, a savings and loan holding company may not acquire more than 5%
of the voting shares of any savings association unless by merger, consolidation
or purchase of assets. Certain regulations of the OTS describe standards for
control under the HOLA (see 'Control of Sovereign').
Federal law empowers the Director of OTS to take substantive action when it
determines that there is reasonable cause to believe that the continuation by a
savings and loan holding company of any particular activity constitutes a
serious risk to the financial safety, soundness, or stability of a savings and
loan holding company's subsidiary savings institution. The Director of OTS has
oversight authority for all holding company affiliates, not just the insured
institution. Specifically, the Director of OTS may, as necessary, (i) limit the
payment of dividends by the savings institution; (ii) limit transactions between
the savings institution, the holding company and the subsidiaries or affiliates
of either; or (iii) limit any activities of the savings institution that might
create a serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings institution. Any such limits would be
issued in the form of a directive having the legal efficacy of a cease and
desist order.
AFFILIATE RESTRICTIONS
The Bank is subject to quantitative and qualitative restrictions under
Sections 23A and 23B of the Federal Reserve Act on certain 'covered
transactions' with its affiliates, including Sovereign and its nonbanking
subsidiaries. Such covered transactions include, generally, loans or other
extensions of credit to, investments in, asset purchases from, and issuance of
guarantees, acceptances or letters of credit on behalf of such affiliates. The
Bank may engage in covered transactions with any one affiliate in an amount up
to 10 percent of its capital and surplus, and in an amount up to 20 percent of
its capital and surplus, in the case of covered transactions with all
affiliates. Furthermore, such loans and extensions of credit, guarantees,
acceptances and letters of credit are required to be secured in accordance with
specific statutory requirements, and the purchase of low quality assets from
affiliates is generally prohibited. Federal law also provides that covered
transactions and certain other transactions with affiliates must be on terms and
under circumstances, including credit standards, that are substantially the
same, or at least as favorable to, the Bank as those prevailing at the time for
comparable transactions with or involving nonaffiliated companies. OTS
regulations also impose other restrictions on investments by the Bank in the
stock of its affiliates.
CONTROL OF SOVEREIGN
Under the Savings and Loan Holding Company Act and the related Change in
Bank Control Act (the 'Control Act'), individuals, corporations or other
entities acquiring shares of Sovereign's common stock may, alone or 'in concert'
with other investors, be deemed to control Sovereign and thereby the Bank. If
deemed to control Sovereign, such person or group will be required to obtain OTS
approval to acquire shares of Sovereign's common stock and will be subject to
certain ongoing reporting procedures and restrictions under federal law and
regulations. Under the regulations, ownership of 25% of the capital stock of
Sovereign will be deemed to constitute 'control,' and ownership of more than 10%
of the capital stock may also be deemed to constitute 'control' if certain other
control factors are present. It is possible that even lower levels of ownership
of such securities could constitute 'control' under the regulations. Frederick
J. Jaindl, Chairman of Sovereign, received notice of non-objection from the
predecessor of the OTS on February 15, 1989 and notice of approval from the
Pennsylvania Department of Banking on March 9, 1989 regarding his proposed
acquisition of up to 19.97% of the outstanding common stock of Sovereign. At
January 18, 1994, Mr. Jaindl owned 10.38% of the outstanding shares of
Sovereign's common stock.
4
<PAGE>
SOVEREIGN BANK, A FEDERAL SAVINGS BANK
The Bank is a member of the FHLB system and, except for certain deposits
formerly of Harmonia Bancorp, Inc. which are insured by the Bank Insurance Fund
(the 'BIF'), its deposits are insured by the SAIF. The SAIF and BIF are
administered by the FDIC, but are required to be separately maintained and not
combined. The Bank is required to file reports with the OTS describing its
activities and financial condition and is periodically examined to test
compliance with various regulatory requirements. The Bank is also subject to
examination by the FDIC. Such examinations are conducted with the purpose of
protecting depositors and the insurance fund and not with the purpose of
protecting holders of equity or debt securities of the institution.
REGULATORY CAPITAL REQUIREMENTS
The Financial Institutions Reform, Recovery and Enforcement Act of 1989, as
amended ('FIRREA'), among other things, required the OTS to prescribe uniformly
applicable capital standards for all savings associations. These standards
currently require institutions to maintain a minimum tangible capital ratio of
not less than 1.5%, a minimum core capital, or 'leverage,' ratio of not less
than 3% and a minimum risk-based capital ratio (based upon credit risk) of not
less than 8%, of which at least half must be core capital. In all cases these
standards are to be no less stringent than the capital standards that are
applicable to national banks. Regulations adopted by the OTS require a minimum
leverage capital requirement of 3% for associations rated composite 1 under the
OTS CAMEL rating system. For all other savings associations, the minimum
leverage capital requirement is 3% plus at least an additional 100 to 200 basis
points.
If a savings association does not meet all of its capital requirements, the
OTS may impose certain operating restrictions and require that one or more
corrective actions be taken as specified by the OTS, including a directive to
increase capital. Such a savings association is also not permitted to accept new
funds obtained directly or indirectly from a deposit broker. In the most severe
cases and subject to certain standards, an undercapitalized institution may be
placed into receivership or conservatorship.
RESTRICTIONS ON CAPITAL DISTRIBUTIONS
Regulations. The OTS has adopted a regulation governing capital
distributions by savings associations, which include cash dividends, stock
redemptions or repurchases, cash-out mergers, interest payments on certain
convertible debt and other transactions charged to the capital account of a
savings association. Generally, the regulation creates a safe harbor for
specified levels of capital distributions from associations meeting at least
their minimum capital requirements, so long as such associations notify the OTS
and receive no objection to the distribution from the OTS. Associations that do
not qualify for the safe harbor are required to obtain prior OTS approval before
making any capital distributions.
The OTS rule generally provides for three tiers of savings associations:
(i) Tier 1 associations, associations that have capital ('total capital' as
calculated under the OTS capital regulations) equal to or greater than their
fully phased-in capital requirements (the requirements applicable at December
31, 1994) prior to, and on a pro forma basis after giving effect to, a proposed
capital distribution; (ii) Tier 2 associations, associations that have capital
equal to or greater than their minimum capital requirements, but less than their
fully phased-in capital requirements prior to, and on a pro forma basis after
giving effect to, a proposed capital distribution; and (iii) Tier 3
associations, associations that do not meet their minimum capital requirements,
either before or after giving effect to a proposed capital distribution. Under
the OTS capital distributions rule, a Tier 1 association may make capital
distributions without OTS approval of up to the greater of 100% of its net
income during a calendar year plus the amount that would reduce by one-half its
surplus capital ratio (the percentage by which the association's
capital-to-assets ratio exceeds the ratio of its fully phased-in capital
requirements to its assets) at the beginning of the calendar year, or 75% of its
net income over the most recent four-quarter period. A Tier 1 association may
make capital distributions in excess of the foregoing limits if the OTS does not
object after receiving notice thereof. At December 31, 1993, the Bank was a
'Tier 1
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<PAGE>
association.' A Tier 2 association is authorized without OTS approval to make
distributions of up to 75% of net income over the most recent four-quarter
period if it satisfies its fully phased-in risk-based capital requirement, or up
to 50% of such net income if it satisfies its interim (90% of fully phased-in
amount) risk-based capital requirement. A Tier 2 association may, through a
written approval process, obtain OTS approval to make distributions in excess of
these amounts. Tier 3 associations are not authorized to make any capital
distributions without prior written OTS approval unless, in the case of an
association operating in compliance with an approved capital plan, the capital
distribution is consistent with the association's capital plan. The OTS has
supervisory authority to prohibit the payment of capital distributions for Tier
1 and Tier 2 associations.
As a condition of obtaining approval from the OTS for the reorganization
whereby Sovereign was formed as a 'savings and loan holding company' Sovereign
agreed that the Bank would not pay cash dividends in an amount in excess of 50%
of the Bank's net income for any year. Amounts not used in any one year may be
accumulated and used in subsequent years.
In addition, the Bank generally may not pay dividends if, after the payment
of dividends, it would be deemed 'undercapitalized' under the prompt corrective
action standards of FDICIA, as described below. The HOLA also requires every
savings association subsidiary of a savings and loan holding company to give the
OTS at least 30 days' advance notice of any proposed dividends to be made on its
guarantee, permanent or other non-withdrawable stock or else such dividend will
be invalid.
Contracts. Sovereign's existing Loan Agreement, which at December 31, 1993
had a remaining principal balance of $3.6 million, (prepayable at any time with
a penalty, which is estimated to be approximately $485,000 at December 31, 1993)
restricts the ability of Sovereign to pay dividends or to make other
distributions to shareholders in excess of 25% of Sovereign's consolidated net
earnings from January 1, 1989. At December 31, 1993, approximately $14.4 million
was available for the payment of dividends under this restriction. The Loan
Agreement also contains various financial covenants which may affect the ability
of Sovereign to pay dividends.
FDIC IMPROVEMENT ACT OF 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
'FDICIA') affects insured depository institutions in diverse areas of their
operations. The Act was designed primarily to enhance supervisory authority and
promote viability of the deposit insurance system.
Pursuant to FDICIA the federal banking agencies adopted regulations
establishing five capital categories ranging from 'well capitalized' to
'critically undercapitalized.' Under the regulations, a savings institution will
be 'undercapitalized' if it has a total risk-based capital ratio of less than
8.0%, a core capital ratio of less than 4.0%, or a leverage ratio of less than
4.0% (or a leverage ratio of less than 3.0% if the institution is rated
composite 1 in its most recent report of examination). An institution's capital
category is determined with respect to its most recent thrift financial report.
Certain restrictions will apply to capital distributions, including dividends,
and the payment of management fees to insiders by a depository institution if
such distribution or payment would result in an institution being classified as
'undercapitalized,' and institutions which are classified as 'undercapitalized,'
'significantly undercapitalized,' or 'critically undercapitalized' face severe
operating restrictions. Additionally, the grounds under which the OTS (and,
under certain circumstances, the FDIC) can appoint the FDIC as a conservator or
receiver for a thrift institution have been expanded to facilitate prompt
regulatory action if certain factors exist, including if the institution is
undercapitalized with no reasonable prospect of becoming adequately capitalized,
or fails to submit or implement a capital restoration plan, among other things.
The FDICIA restricts the ability of institutions that are not 'well
capitalized' to accept, renew or roll-over brokered deposits; 'adequately
capitalized' and 'undercapitalized' institutions are prohibited from soliciting
deposits by offering interest rates that are significantly higher than the
prevailing rates in their normal market area or the market area where such
deposits would be accepted.
6
<PAGE>
The FDICIA requires each federal banking agency to review, every two years,
its capital standards to prevent or minimize loss to BIF and SAIF. Each agency
must also revise its risk-based capital standards to ensure that those standards
adequately take into account interest-rate risk, concentration of credit risk
and risks of nontraditional activities.
The FDICIA gives the FDIC authority to impose special assessments upon
depository institutions to the extent necessary to repay the obligations of the
FDIC. Any such assessment must be allocated between BIF members and SAIF members
in amounts which reflect the degree to which proceeds borrowed are used for the
benefit of the respective insurance funds.
Provisions of the FDICIA relax certain requirements for mergers and
acquisitions among financial institutions, including authorization of mergers of
insured institutions that are not members of the same insurance fund, and the
FDICIA provides specific authorization for a federally chartered savings
association or national bank to be acquired by any insured depository
institution.
Other provisions of the FDICIA impose certain operational and managerial
standards on financial institutions relating to internal controls, loan
documentation, credit underwriting, interest rate exposure, asset growth and
compensation of officers.
The FDICIA provides for the adoption by federal bank regulatory agencies,
at various future dates, of other regulations that will govern the operations
and activities of insured depository institutions in more detail than in the
past and with respect to matters not previously subject to specific rules. The
details of such regulations cannot be predicted prior to their adoption. The
effects of FIRREA and the FDICIA upon the future business, earnings and growth
of Sovereign and its banking subsidiaries are not expected to be material.
INSURANCE OF DEPOSIT ACCOUNTS
The Banks' deposit accounts are insured by the SAIF to the maximum extent
permitted by law. The Bank is subject to FDIC deposit insurance assessments at
the rate applicable to SAIF-insured institutions. The FDIC is authorized to
increase such assessment rates, on a semiannual basis, if it determines that the
reserve ratio of the SAIF will be less than the designated reserve ratio of
1.25% of SAIF insured deposits. In setting these increased assessments, the FDIC
must seek to restore the ratio to that designated reserve level, or such higher
reserve ratio as established by the FDIC.
The FDIC has adopted final regulations (i) establishing 15 year
recapitalization schedules for the SAIF and the BIF, (ii) implementing a
risk-based assessment system, and (iii) increasing the deposit insurance rate
for certain members of SAIF and BIF. The purpose of these regulations is to
restore the reserve ratios for BIF and SAIF to the statutorily mandated reserve
ratio of 1.25% of insured deposits for both funds.
Under the risk-based assessment system, each BIF and SAIF member
institution will be assigned to one of nine assessment risk classifications
based on its capital ratios and supervisory evaluations. The lowest risk
institutions presently pay deposit insurance at a rate of .23% of domestic
deposits while the highest risk institutions are assessed at the rate of .31% of
domestic deposits. Each institution's classification under the system is
reexamined semiannually. In addition, the FDIC is authorized to increase or
decrease such rates on a semiannual basis.
The FDIC may adjust its recapitalization schedule and the insurance
assessment rates based on actual experience and perceived risks to the insurance
funds. In addition, under the FDICIA, the FDIC may impose special assessments on
members to repay amounts borrowed from the United States Treasury or for any
other reason deemed necessary by the FDIC.
Institutions are prohibited from disclosing the risk classification to
which they have been assigned. Management of Sovereign does not believe,
however, that the risk-based assessment schedule adopted by the FDIC will have a
material adverse effect on Sovereign's financial condition.
The FIRREA gives the FDIC the authority to suspend the deposit insurance of
any institution without tangible capital. However, if an institution has
positive capital when it includes qualifying
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<PAGE>
intangible assets, the FDIC cannot suspend deposit insurance unless capital
declines materially, the institution fails to enter into and remain in
compliance with an approved capital plan or the institution is operating in an
unsafe or unsound manner. Regardless of an institution's capital level,
insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the institution's
primary regulator.
Federal savings banks like the Bank are required by OTS regulations to pay
assessments to the OTS to fund the operations of the OTS. The general assessment
is paid on a quarterly basis and is computed based on total assets of the
institution, including subsidiaries.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the Corporation including its
consolidated subsidiaries is computed by dividing earnings by fixed charges. The
ratio of earnings to combined fixed charges and preferred stock dividends is
computed by dividing earnings by the sum of fixed charges and preferred stock
dividend requirements. Earnings consist primarily of income (loss) before income
taxes adjusted for fixed charges. Fixed charges consist primarily of interest
expense on short-term and long-term borrowings.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges
Excluding interest on deposits................................. 2.13x 2.31x 1.88x 1.30x 1.45x
Including interest on deposits................................. 1.36x 1.28x 1.16x 1.07x 1.11x
Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends
Excluding interest on deposits................................. 2.13x 2.31x 1.88x 1.30x 1.45x
Including interest on deposits................................. 1.36x 1.28x 1.16x 1.07x 1.11x
</TABLE>
USE OF PROCEEDS
The net proceeds of the Offered Securities will be used for general
corporate purposes, which may include without limitation funding investments in,
or extensions of credit to, the Corporation's subsidiaries, repayment of
obligations, redemption of outstanding indebtedness and financing possible
future acquisitions. Pending such use, the Corporation may temporarily invest
the net proceeds or may use them to reduce short-term indebtedness.
8
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may apply to the Debt Securities so offered will be described
in the Prospectus Supplement relating to such Debt Securities. Except where
specifically noted, the following description applies to both Senior Securities
and Subordinated Securities.
GENERAL
The Debt Securities will be unsecured obligations of the Corporation and
will not be insured by the Savings Association Insurance Fund or the Bank
Insurance Fund of the Federal Deposit Insurance Corporation.
The Debt Securities will be issued either as Senior Securities or
Subordinated Securities. The Senior Securities will be issued under an Indenture
dated as of February 1, 1994 (the 'Senior Indenture'), between the Corporation
and Harris Trust and Savings Bank, as Trustee. The Subordinated Securities will
be issued under an Indenture dated as of February 1, 1994 (the 'Subordinated
Indenture'), between the Corporation and Harris Trust and Savings Bank, as
Trustee. The Senior Indenture and the Subordinated Indenture are collectively
referred to herein as the 'Indentures.' Copies of the Indentures have been filed
with the Commission. References to the 'Trustee' shall mean Harris Trust and
Savings Bank as trustee under the Senior Indenture or the Subordinated
Indenture, as applicable.
The statements which follow under this caption are brief summaries of
certain provisions contained in the Indentures, do not purport to be complete
and are qualified in their entirety by reference to all the provisions of the
applicable Indenture, copies of which have been filed with the Commission as
exhibits to the Registration Statement. Whenever defined terms are used but not
defined herein, such terms shall have the meanings ascribed to them in the
applicable Indenture, it being intended that such defined terms shall be
incorporated herein by reference. References to Sections are references to
Sections in both Indentures unless otherwise indicated.
Neither Indenture limits the aggregate principal amount of Debt Securities
that may be issued thereunder and each Indenture provides that Debt Securities
of any series may be issued thereunder up to the aggregate principal amount
which may be authorized from time to time by the Corporation. Except as may be
set forth in a Prospectus Supplement, neither the Indentures nor the Debt
Securities will limit or otherwise restrict the amount of other indebtedness
which may be incurred or the other securities which may be issued by the
Corporation or any of its affiliates.
Because the Corporation is a holding company, the rights of its creditors,
including the holders of the Debt Securities, to share in the distribution of
the assets of any subsidiary upon the subsidiary's liquidation or
recapitalization, will be subject to the prior claims of the subsidiary's
creditors (including in the case of the Corporation's banking subsidiaries,
their depositors), except to the extent that the Corporation may itself be a
creditor with recognized claims against the subsidiary. In addition, there are
certain regulatory limitations on the payment of dividends and on loans and
other transfers to the Corporation by its banking subsidiaries. See 'Supervision
and Regulation.'
The amount of Debt Securities offered by this Prospectus will be limited to
the amounts described on the cover of this Prospectus. Each indenture provides
that Debt Securities in an unlimited amount may be issued thereunder from time
to time in one or more series. (Section 301)
The Senior Securities will be unsecured and will rank pari passu with other
unsecured Senior Debt of the Corporation. The Subordinated Securities will be
unsecured and, except as may be set forth in a Prospectus Supplement, will rank
pari passu with other Subordinated Debt of the Corporation and, together with
such other Subordinated Debt, will be subordinate and junior in right of payment
to the prior payment in full of the Senior Debt of the Corporation as described
below under 'Subordination.'
9
<PAGE>
Reference is hereby made to the Prospectus Supplement relating to the
particular series of Debt Securities for the terms of such Debt Securities,
including, where applicable: (1) the title of the Debt Securities of the series
(which shall distinguish the Debt Securities of the series from all other Debt
Securities); (2) the limit, if any, upon the aggregate principal amount of the
Debt Securities of the series which may be authenticated and delivered; (3) the
date or dates on which the principal and premium, if any, of the Debt Securities
of the series will be payable; (4) the rate or rates, if any, at which the Debt
Securities of the series shall bear interest, or the method or methods by which
such rate or rates may be determined, the date or dates from which such interest
shall be payable, the record date for the interest payable and the
circumstances, if any, in which the Company may defer interest payments; (5) the
place or places where the principal of (and premium, if any) and interest on
Debt Securities of the series shall be payable, any Registered Securities of the
series may be surrendered for registration of transfer, Debt Securities of the
series may be surrendered for exchange and notices and demands to or upon the
Company in respect of the Debt Securities of the series and the Indenture may be
served where notices to Holders will be published; (6) if applicable, the period
or periods within which or the date or dates on which, the price or prices at
which and the terms and conditions upon which Debt Securities of the series may
be redeemed, in whole or in part, at the option of the Company; (7) if
applicable, the place or places at which, the period or periods within which,
the price or prices at which and the terms and conditions upon which Debt
Securities shall be exchangeable for Capital Securities of the Company (see
'Description of Capital Securities'); (8) any covenant or option of the Company
to create a securities fund (the 'Securities Fund') for the repayment of the
Debt Securities and the terms and conditions of such Securities Fund; (9) the
obligation, if any, of the Company to redeem, repay or purchase Debt Securities
of the series pursuant to any sinking find or analogous provisions or at the
option of a Holder thereof and the period or periods within which the price or
prices at which the terms and conditions upon which Debt Securities of the
series shall be redeemed, repaid or purchased, in whole or in part, pursuant to
such obligations; (10) whether Debt Securities of the series are to be issuable
as Registered Securities, Bearer Securities or both, whether Debt Securities of
the series are to be issuable with or without coupons or both and, in the case
of Bearer Securities, the date as of which such Bearer Securities shall be dated
if other than the date of original issuance of the first Debt Security of such
series of like tenor and term to be issued; (11) whether the Debt Securities of
the series shall be issued in whole or in part in the form of a Global Security
or Securities and, in such case, the Depositary and Global Exchange Agent for
such Global Security or Securities, whether such global form shall be permanent
or temporary and, if applicable, the Global Exchange Date; (12) if Debt
Securities of the series are to be issuable initially in the form of a temporary
Global Security, the circumstances under which the temporary Global Security can
be exchanged for definitive Debt Securities and whether the definitive Debt
Securities will be Registered and/or Bearer Securities and will be in global
form and whether interest in respect of any portion of such Global Security
payable in respect of an Interest Payment Date prior to the Global Exchange Date
shall be paid to any clearing organization with respect to a portion of such
Global Security held for its account and, in such event, the terms and
conditions (including any certification requirements) upon which any such
interest payment received by a clearing organization will be credited to the
Persons entitled to interest payable on such Interest Payment Date; (13)
whether, and under what conditions, additional amounts will be payable to
Holders of Debt Securities of the series; (14) the denomination in which any
Registered Securities of the series shall be issuable, if other than
denominations of $1,000 and any integral multiple thereof, and the denominations
in which any Bearer Securities of such series shall be issuable, if other than
the denomination of $5,000; (15) if other than the principal amount thereof, the
portion of the principal amount of Debt Securities of the series which shall be
payable upon declaration of acceleration of the Maturity thereof; (16) the
currency or currencies of denomination of the Debt Securities of any series,
which may be in Dollars, any foreign currency or any composite currency,
including but not limited to the ECU, and, if any such currency of denomination
is a composite currency other than the ECU, the agency or organization, if any,
responsible for overseeing such composite currency; (17) the currency or
currencies in which payment of principal of (and premium, if any) and interest
on the Debt Securities will be made, the currency or currencies, if any, in
which payment of the principal of (and premium, if any) or the interest on
Registered Securities, at the election of each of the Holders thereof, may also
be payable and the
10
<PAGE>
periods within which and the terms and conditions upon which such election is to
be made and the exchange rate and exchange rate agent; (18) if the amount of
payments of principal of (and premium, if any) or interest on the Debt
Securities of the series may be determined with reference to an index based on a
currency or currencies other than in which the Debt Securities are denominated
or designated to be payable, the manner in which such amounts shall be
determined; (19) if payments of principal of (and premiums, if any) or interest
on the Debt Securities of the series are to be made in a foreign currency other
than the currency in which such Debt Securities are denominated, the manner in
which the Exchange Rate with respect to such payments shall be determined; (20)
any additional Events of Default with respect to Debt Securities of such series,
(21) the terms and conditions, if any, pursuant to which the Company's
obligations under the Indenture may be terminated through the deposit of money
or other Eligible Instruments; (22) the Person or Persons who shall be Security
Registrar for the Debt Securities of such series if other than the Trustee, and
the place or places where the Security Registrar for such series shall be
maintained and the Person or Persons who will be the initial paying agent or
agents, if other than the Trustee; (23) whether the Debt Securities may be
convertible into Common Stock (see 'Description of Common Stock'), Preferred
Shares (see 'Description of Preferred Shares') or any other Capital Securities
(see 'Description of Capital Securities') of the Company and the terms related
thereto including the conversion price and the date on which the right to
convert expires; and (24) any other terms of the series. Such Prospectus
Supplement will also describe any additional restrictive covenants included for
the benefit of Holders of such Debt Securities, information with respect to
book-entry procedures, certain federal income tax consequences and other special
considerations applicable to such series of Debt Securities. If a Debt Security
is denominated in a foreign currency, such Debt Security may not trade on a U.S.
national securities exchange unless and until the Commission has approved
appropriate rule changes pursuant to the Act to accommodate the trading of such
Debt Security.
FORM, EXCHANGE, REGISTRATION AND TRANSFER
Debt Securities of a series may be issuable in definitive form solely as
Registered Securities, solely as Bearer Securities or as both Registered
Securities and Bearer Securities. Unless otherwise indicated in the Prospectus
Supplement, Bearer Securities other than Bearer Securities in temporary or
permanent global form will have interest coupons attached. (Section 201) Each
Indenture also provides that Bearer Securities or Registered Securities of a
series may be issuable in temporary or permanent global form. (Section 203) See
'Permanent Global Securities.'
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series of authorized denominations and of a
like aggregate principal amount, tenor and terms. In addition, if Debt
Securities of any series are issuable as both Registered Securities and Bearer
Securities, at the option of the Holder upon request confirmed in writing, and
subject to the terms of the applicable Indenture, Bearer Securities (with all
unmatured coupons, except as provided below, and all matured coupons in default)
of such series will be exchangeable into Registered Securities of the same
series of any authorized denominations and of a like aggregate principal amount,
tenor and terms. Bearer Securities surrendered in exchange for Registered
Securities between the close of business on a Regular Record Date or a Special
Record Date and the relevant date for payment of interest shall be surrendered
without the coupon relating to such date for payment of interest, and interest
will not be payable in respect of the Registered Security issued in exchange for
such Bearer Security, but will be payable only to the Holder of such coupon when
due in accordance with the terms of the applicable Indenture. Bearer Securities
will not be issued in exchange for Registered Securities. (Section 305) Each
Bearer Security, other than a temporary global Bearer Security, and each
interest coupon will bear the following legend: 'Any United States Person who
holds this obligation will be subject to limitations under the United States
federal income tax laws including the limitations provided in Sections 165(j)
and 1287(a) of the Internal Revenue Code.'
Debt Securities may be presented for exchange as provided above, and
Registered Securities may be presented for registration of transfer (duly
endorsed or accompanied by a satisfactory written instrument of transfer), at
the office of the Security Registrar or at the office of any transfer agent
11
<PAGE>
designated by the Corporation for such purpose with respect to such series of
Debt Securities, without service charge and upon payment of any taxes and other
governmental charges. (Section 305) If the applicable Prospectus Supplement
refers to any transfer agent (in addition to the Security Registrar) initially
designated by the Corporation with respect to any series of Debt Securities, the
Corporation may at any time rescind the designation of any such transfer agent
or approve a change in the location through which any such transfer agent (or
Security Registrar) acts, except that, if Debt Securities of a series are
issuable solely as Registered Securities, the Corporation will be required to
maintain a transfer agent in each Place of Payment for such series and, if Debt
Securities of a series are issuable as Bearer Securities, the Corporation will
be required to maintain (in addition to the Security Registrar) a transfer agent
in a Place of Payment for such series located outside the United States. The
Corporation may at any time designate additional transfer agents with respect to
any series of Debt Securities. (Section 1002)
The Corporation shall not be required (i) to issue, register the transfer
of or exchange Debt Securities of any particular series to be redeemed or
exchanged for Capital Securities for a period of fifteen days preceding the
first publication of the relevant notice of redemption or, if Registered
Securities are outstanding and there is no publication, the mailing of the
relevant notice of redemption, (ii) to register the transfer of or exchange any
Registered Security so selected for redemption or exchange in whole or in part,
except the unredeemed or unexchanged portion of any Registered Security being
redeemed or exchanged in part, or (iii) to exchange any Bearer Security so
selected for redemption or exchange except that such a Bearer Security may be
exchanged for a Registered Security of like tenor and terms of that series,
provided that such Registered Security shall be surrendered for redemption or
exchange. (Section 305) Additional information regarding restrictions on the
issuance, exchange and transfer of, and special United States federal income tax
considerations relating to Bearer Securities will be set forth in the applicable
Prospectus Supplement.
TEMPORARY GLOBAL SECURITIES
If so specified in the applicable Prospectus Supplement, all or any portion
of the Debt Securities of a series which are issuable as Bearer Securities will
initially be represented by one or more temporary Global Securities, without
interest coupons, to be deposited with a common depositary in London for Morgan
Guaranty Trust Corporation of New York, Brussels Office, as operator of the
Euroclear System ('Euroclear') and Cedel S.A. ('Cedel') for credit to designated
accounts. On and after the date determined as provided in any such temporary
Global Security and described in the applicable Prospectus Supplement, but
within a reasonable time, each such temporary Global Security will be
exchangeable for definitive Bearer Securities, definitive Registered Securities
or all or a portion of a permanent global Bearer Security, or any combination
thereof, as specified in such Prospectus Supplement. No definitive Bearer
Security or permanent global Bearer Security delivered in exchange for a portion
of a temporary Global Security shall be mailed or otherwise delivered to any
location in the United States in connection with such exchange.
Additional information regarding restrictions on and special United States
federal income tax consequences relating to temporary Global Securities will be
set forth in the Prospectus Supplement relating thereto.
PERMANENT GLOBAL SECURITIES
If any Debt Securities of a series are issuable in permanent global form,
the applicable Prospectus Supplement will describe the circumstances, if any,
under which beneficial owners of interest in any such permanent Global Security
may exchange such interests for Debt Securities of such series and of like tenor
and principal amount of any authorized form and denomination. Principal of and
any premium and interest on a permanent Global Security will be payable in the
manner described in the Prospectus Supplement relating thereto.
12
<PAGE>
PAYMENTS AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement,
payments of principal of and premium, if any, and interest, if any, on Bearer
Securities will be payable in the currency designated in the Prospectus
Supplement, subject to any applicable laws and regulations, at such paying
agencies outside the United States as the Corporation may appoint from time to
time. Unless otherwise provided in the Prospectus Supplement, such payments may
be made, at the option of the Holder, by a check in the designated currency or
by transfer to an account in the designated currency maintained by the payee
with a bank located outside the United States. Unless otherwise indicated in the
applicable Prospectus Supplement, payment of interest on Bearer Securities on
any Interest Payment Date will be made only against surrender of the coupon
relating to such Interest Payment Date to a paying agent outside the United
States. (Section 1001) No payment with respect to any Bearer Security will be
made at any office or paying agency maintained by the Corporation in the United
States nor will any such payment be made by transfer to an account, or by mail
to an address, in the United States. Notwithstanding the foregoing, payments of
principal of and premium, if any, and interest, if any, on Bearer Securities
denominated and payable in U.S. dollars will be made in U.S. dollars at an
office or agency of, and designated by, the Corporation located in the United
States, if payment of the full amount thereof in U.S. dollars at all paying
agencies outside the United States is illegal or effectively precluded by
exchange controls or other similar restrictions, and the Trustee receives an
opinion of counsel that such payment within the United States is legal. (Section
1002) As used in this Prospectus, 'United States' means the United States of
America (including the States and the District of Columbia) and its possessions
including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake
Island and the Northern Marianas Islands.
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of and premium, if any, and interest, if any, on a Registered
Security will be payable in the currency designated in the Prospectus
Supplement, and interest will be payable at the office of such paying agent or
paying agents as the Corporation may appoint from time to time, except that at
the option of the Corporation payment of any interest may be made by a check in
such currency mailed to the Holder at such Holder's registered address or by
wire transfer to an account in such currency designated by such Holder in
writing not less than ten days prior to the date of such payment. Unless
otherwise indicated in the applicable Prospectus Supplement, payment of any
installment of interest on a Registered Security will be made to the Person in
whose name such Registered Security (or one or more predecessor securities) is
registered at the close of business on the Regular Record Date for such
payments. (Section 307) Unless otherwise indicated in the applicable Prospectus
Supplement, principal payable at maturity will be paid to the registered holder
upon surrender of the Registered Security at the office of a duly appointed
paying agent.
The paying agents outside the United States initially appointed by the
Corporation for a series of Debt Securities will be named in the applicable
Prospectus Supplement. The Corporation may terminate the appointment of any of
the paying agents from time to time, except that the Corporation will maintain
at least one paying agent outside the United States so long as any Bearer
Securities are outstanding where Bearer Securities may be presented for payment
and may be surrendered for exchange, provided that so long as any series of Debt
Securities is listed on The Stock Exchange of the United Kingdom and the
Republic of Ireland or the Luxembourg Stock Exchange or any other stock exchange
located outside the United States and such stock exchange shall so require, the
Corporation will maintain a paying agent in London or Luxembourg or any other
required city located outside the United States, as the case may be, for so long
as the Debt Securities of such series are listed on such exchange. (Section
1002)
All moneys paid by the Corporation to a paying agent for the payment of
principal of or premium, if any, or interest, if any, on any Debt Security that
remains unclaimed at the end of two years after such principal, premium or
interest shall have become due and payable will, at request of the Corporation,
be repaid to the Corporation, and the Holder of such Debt Security or any coupon
appertaining thereto will thereafter look only to the Corporation for payment
thereof. (Section 1003)
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COVENANTS CONTAINED IN INDENTURES
The Indentures provide that the Corporation (a) will not sell, transfer, or
otherwise dispose of any shares of Voting Stock of Sovereign Bank or permit
Sovereign Bank to issue, sell, or otherwise dispose of any shares of its Voting
Stock unless Sovereign Bank remains a Controlled Subsidiary, or (b) will not
permit Sovereign Bank to (i) merge or consolidate unless the surviving
corporation is a Controlled Subsidiary or (ii) convey or transfer its properties
and assets substantially as an entirety to any person, except to a Controlled
Subsidiary. (Section 1005) 'Controlled Subsidiary' means any corporation more
than 80% of the outstanding shares of 'Voting Stock' (except for directors'
qualifying shares) of which is at the time owned directly by the Corporation.
With the consent of the Holders of a majority in aggregate principal amount of
the Outstanding Debt Securities of each series issued under the Indentures, such
definition in the Indentures may be modified so as to reduce the required
percentage of ownership from 80% to a majority. (Section 902) The term 'Voting
Stock' of Sovereign Bank refers to stock of any class or classes, however
designated, having ordinary voting power for the election of a majority of the
Board of Directors of Sovereign Bank, other than stock having such power only by
reason of the happening of a contingency. (Section 101)
The Senior Indenture also prohibits the Corporation from creating,
assuming, incurring or suffering to exist, as security for indebtedness for
borrowed money, any mortgage, pledge, encumbrance or lien or charge of any kind
upon the Voting Stock of Sovereign Bank (other than directors' qualifying
shares) without effectively providing that the Senior Securities shall be
secured equally and ratably with (or prior to) such indebtedness; provided,
however, that the Corporation may create, assume, incur or suffer to exist any
such mortgage, pledge, encumbrance or lien or charge without regard to the
foregoing provisions so long as after giving effect thereto, the Corporation
will own at least 80% of the Voting Stock of Sovereign Bank then issued and
outstanding, free and clear of any such mortgage, pledge, encumbrance, or lien
or charge. (Section 1004 of the Senior Indenture) The Subordinated Indenture
does not contain this covenant.
The Corporation is not restricted by the Indentures from incurring,
assuming or becoming liable for any type of debt or other obligations, from
creating liens on its property (other than in the case of the Senior Indentures,
the Voting Stock of Sovereign Bank as described above) for any purposes or from
paying dividends or making distributions on its capital stock or purchasing or
redeeming its capital stock. The Indentures do not require the maintenance of
any financial ratios or specified levels of net worth or liquidity. In addition,
the Indentures do not contain any provision which would require the Corporation
to repurchase or redeem or otherwise modify the terms of any of its Debt
Securities upon a change in control or other events involving the Corporation
which may adversely affect the creditworthiness of the Debt Securities.
MODIFICATION AND WAIVER
Except as to the definition of Controlled Subsidiary in the Senior
Indenture and certain other modifications and amendments not adverse to Holders
of Debt Securities, modifications and amendments of and waivers of compliance
with certain restrictive provisions under each Indenture may be made only with
the consent of the Holders of not less than 66 2/3% in principal amount of the
Outstanding Debt Securities of each series thereunder affected by such
modification, amendment or waiver; provided that no such modification or
amendment may, without the consent of the Holder of each Outstanding Debt
Security or coupon affected thereby; (i) change the Stated Maturity of the
principal or any installment of principal or any installment of interest, if
any; (ii) reduce the amount of principal or interest thereon, or any premium
payable upon redemption or repayment thereof or in the case of an Original Issue
Discount Security the amount of principal payable upon acceleration of the
Maturity thereof; (iii) change the place of payment or the currency in which
principal or interest is payable, if any; (iv) impair the right to institute
suit for the enforcement of any payment of the principal, premium, if any, and
interest, if any, or adversely affect the right of repayment, if any, at the
option of the Holder; (v) reduce the percentage in principal amount of
Outstanding Debt Securities of any series, the consent of whose Holders is
required for modification or amendment of the applicable Indenture or for waiver
of compliance with certain provisions of the applicable Indenture or for waiver
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of certain defaults; (vi) reduce the requirements contained in the applicable
Indenture for quorum or voting; (vii) in the case of Debt Securities
exchangeable for Capital Securities, impair any right to the delivery of Capital
Securities in exchange for such Debt Securities or the right to institute suit
for the enforcement of any such delivery or, in the case of Debt Securities
convertible into Common Stock or Preferred Shares, impair any right to convert
such Debt Securities; or (viii) modify any of the above provisions.
(Section 902)
Each Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series issued thereunder if Debt Securities of that series
are issuable in whole or in part as Bearer Securities. (Section 1601) A meeting
may be called at any time by the Trustee for such Debt Securities, or upon the
request of the Corporation or the Holders of at least 10% in principal amount of
the Outstanding Debt Securities of such series, in any such case upon notice
given in accordance with the Indenture with respect thereto. (Section 1602)
Except as limited by the proviso in the preceding paragraph, any resolution
presented at a meeting or adjourned meeting at which a quorum is present may be
adopted by the affirmative vote of the Holders of a majority in principal amount
of the Outstanding Debt Securities of that series; provided, however, that,
except as limited by the proviso in the preceding paragraph, any resolution with
respect to any consent or waiver which may be given by the Holders of not less
than 66 2/3% in principal amount of the Outstanding Debt Securities of a series
issued under an Indenture may be adopted at a meeting or an adjourned meeting at
which a quorum is present only by the affirmative vote of the Holders of 66 2/3%
in principal amount of such Outstanding Debt Securities of that series; and
provided further, that, except as limited by the proviso in the preceding
paragraph, any resolution with respect to any demand, consent, waiver or other
action which may be made, given or taken by the Holders of a specified
percentage, which is less than a majority, in principal amount of the
Outstanding Debt Securities of a series issued under an Indenture may be adopted
at a meeting or adjourned meeting at which a quorum is present by the
affirmative vote of the Holders of such specified percentage in principal amount
of the Outstanding Debt Securities of that series. (Section 1604)
Any resolution passed or decision taken at any meeting of Holders of Debt
Securities of any series duly held in accordance with the applicable Indenture
with respect thereto will be binding on all Holders of Debt Securities of that
series and the related coupons issued under that Indenture. The quorum at any
meeting of Holders of a series of Debt Securities called to adopt a resolution,
and at any reconvened meeting, will be persons holding or representing a
majority in principal amount of the Outstanding Debt Securities of such series;
provided, however, that if any action is to be taken at such meeting with
respect to a consent or waiver which may be given by the Holders of not less
than 66 2/3% in principal amount of the Outstanding Debt Securities of a series,
the Persons holding or representing 66 2/3% in principal amount of the
Outstanding Debt Securities of such series issued under that Indenture will
constitute a quorum. (Section 1604)
EVENTS OF DEFAULT
Unless otherwise provided in the applicable Prospectus Supplement, any
series of Senior Securities issued under the Senior Indenture will provide that
the following shall constitute Events of Default with respect to such series:
(i) default in payment of principal of or premium, if any, on any Senior
Security of such series when due; (ii) default for 30 days in payment of
interest, if any, on any Senior Security of such series or related coupon, if
any, when due; (iii) default in the deposit of any sinking fund payment on any
Senior Security of such series when due; (iv) default in the performance of any
other covenant in such Indenture, continued for 90 days after written notice
thereof by the Trustee thereunder or the Holders of at least 25% in principal
amount of the Outstanding Senior Securities of such series issued under that
Indenture; and (v) certain events of bankruptcy, insolvency or reorganization of
the Corporation or Sovereign Bank. (Section 501 of the Senior Indenture)
Unless otherwise provided in the applicable Prospectus Supplement, any
series of Subordinated Securities issued under the Subordinated Indenture will
provide that the only Event of Default will be certain events of bankruptcy of
the Corporation. (Section 501 of the Subordinated Indenture) Unless specifically
stated in the applicable Prospectus Supplement for a particular series of
Subordinated
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Securities, there is no right of acceleration of the payment of principal of the
Subordinated Securities upon a default in the payment of principal, premium, if
any, or interest, if any, or in the performance of any covenant or agreement in
the Subordinated Securities or Subordinated Indenture. In the event of a default
in the payment of principal, premium, if any, or interest, if any, or the
performance of any covenant (including, if applicable, any covenant to deliver
any Capital Securities required to be delivered or any covenant to sell Capital
Securities in a Secondary Offering) or agreement in the Subordinated Securities
or Subordinated Indenture, the Trustee, subject to certain limitations and
conditions, may institute judicial proceedings to enforce payment of such
principal, premium, if any, or interest, if any, or to obtain the performance of
such covenant or agreement or any other proper remedy, including, in the case of
the failure to deliver Capital Securities, a proceeding to collect money equal
to the principal amount of any Subordinated Securities for which Capital
Securities were to be exchanged. (Section 503 of the Subordinated Indenture)
The Corporation is required to file with each Trustee annually an Officers'
Certificate as to the absence of certain defaults under the terms of the
Indentures. (Section 1007 of the Senior Indenture, Section 1004 of the
Subordinated Indenture) Each Indenture provides that if an Event of Default
specified therein shall occur and be continuing, either the Trustee thereunder
or the Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series issued under that Indenture may declare the principal
of all such Debt Securities (or in the case of Original Issue Discount Series,
such portion of the principal amount thereof as may be specified in the terms
thereof) to be due and payable. (Section 502) In certain cases, the Holders of a
majority in principal amount of the Outstanding Debt Securities of any series
may, on behalf of the Holders of all Debt Securities of any such series and any
related coupons, waive any past default or Event of Default except a default (i)
in payment of the principal of or premium, if any, on any of the Debt Securities
of such series and (ii) in respect of a covenant or provision of the Indenture
which cannot be modified or amended without the consent of the Holder of each
Outstanding Debt Security of such series or coupons affected. (Section 513)
Each Indenture contains a provision entitling the Trustee thereunder
subject to the duty of such Trustee during default to act with the required
standard of care, to be indemnified by the Holders of the Debt Securities of any
series thereunder or any related coupons before proceeding to exercise any right
or power under such Indenture with respect to such series at the request of such
Holders. (Section 603) Each Indenture provides that no Holder of any Debt
Securities of any series thereunder or any related coupons may institute any
proceeding, judicial or otherwise, to enforce such Indenture except in the case
of failure of the Trustee thereunder, for 60 days, to act after it is given
notice of default, a request to enforce such Indenture by the Holders of not
less than 25% in aggregate principal amount of the Outstanding Debt Securities
of such series and an offer of indemnity reasonable to the Trustee. (Section
507) This provision will not prevent any Holder of Debt Securities or any
related coupons from enforcing payment of the principal thereof and premium, if
any, and interest, if any, thereon at the respective due dates thereof. (Section
508) The Holders of a majority in aggregate principal amount of the Outstanding
Debt Securities of any series issued under an Indenture may direct the time,
method and place of conducting any proceedings for any remedy available to the
Trustee for such Debt Securities or exercising any trust or power conferred on
it with respect to the Debt Securities of such series. However, such Trustee may
refuse to follow any direction that conflicts with law or the Indenture under
which it serves or which would be unjustly prejudicial to Holders not joining
therein. (Section 512)
Each Indenture provides that the Trustee thereunder will, within 90 days
after the occurrence of a default with respect to any series of Debt Securities
thereunder known to it, give to the Holders of Debt Securities of such series
notice of such default if not cured or waived, but, except in the case of a
default in the payment of principal of or premium, if any, or interest, if any,
on any Debt Securities of such series or any related coupons or in the payment
of any sinking fund installment with respect to Debt Securities of such series
or in the exchange of Capital Securities for Debt Securities of such series, the
Trustee for such Debt Securities shall be protected in withholding such notice
if it
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determines in good faith that the withholding of such notice is in the interest
of the Holders of such Debt Securities. (Section 602)
DEFEASANCE
The Corporation may terminate certain of its obligations under each
Indenture with respect to the Debt Securities of any series thereunder,
including its obligations to comply with the covenants described under the
heading 'Covenants Contained in Indentures' above, with respect to such Debt
Securities, on the terms and subject to the conditions contained in such
Indentures, by depositing in trust with the Trustee money and/or, to the extent
such Debt Securities are denominated and payable in U.S. dollars only, Eligible
Instruments which, through the payment of principal and interest in accordance
with their terms, will provide money in an amount sufficient to pay the
principal and premium, if any, and interest, if any, on such Debt Securities,
and any mandatory sinking fund, repayment or analogous payments thereon, on the
scheduled due dates therefor. Such deposit and termination is conditioned upon
the Corporation's delivery of an opinion of counsel that the Holders of such
Debt Securities will have no federal income tax consequences as a result of such
deposit and termination. Such termination will not relieve the Corporation of
its obligation to pay when due the principal of or interest on such Debt
Securities if such Debt Securities of such series are not paid from the money or
Eligible Instruments held by the Trustee for the payment thereof. (Section 401)
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting or restricting such defeasance with respect to the Debt
Securities of a particular series.
SUBORDINATION
The Subordinated Securities shall be subordinate and junior in right of
payment, to the extent set forth in the Subordinated Indenture, to all Senior
Debt (as defined below) of the Corporation. In the event that the Corporation
shall default in the payment of any principal, premium, if any, or interest, if
any, on any Senior Debt when the same becomes due and payable, whether at
Maturity or at a date fixed for prepayment or by declaration of acceleration or
otherwise, then, unless and until such default shall have been cured or waived
or shall have ceased to exist, no direct or indirect payment (in cash, property,
securities, by set-off or otherwise) shall be made or agreed to be made for
principal, premium, if any, or interest, if any, on the Subordinated Securities,
or in respect of any redemption, repayment, retirement, purchase or other
acquisition of any of the Subordinated Securities. (Section 1801 of the
Subordinated Indenture) 'Senior Debt' means any obligation of the Corporation to
its creditors, whether now outstanding or subsequently incurred other than (i)
any obligation as to which it is provided that such obligation is not Senior
Debt and (ii) the Subordinated Securities. (Section 101 of the Subordinated
Indenture) As of December 31, 1993, the Corporation had approximately $3.6
million of Senior Debt outstanding. A series of Subordinated Debt Securities may
be issued that is subordinate to the Senior Debt, but is senior as to right of
payment to some or all other series of Subordinated Debt Securities.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Corporation, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding up of the Corporation, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Corporation for the benefit of creditors or (iv) any
other marshalling of the assets of the Corporation, all Senior Debt (including
any interest thereon accruing after the commencement of any such proceedings)
shall first be paid in full before any payment or distribution, whether in cash,
securities or other property, shall be made on account of the principal or
interest on the Subordinated Securities. In such event, any payment or
distribution on account of the principal of or interest on the Subordinated
Securities, whether in cash, securities or other property (other than securities
of the Corporation or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at least to
the extent provided in the subordination provisions with respect to the
Subordinated Securities, to the payment of all Senior Debt at the time
outstanding, and to any securities issued in respect thereof under any such plan
of reorganization or adjustment), which
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would otherwise (but for the subordination provisions) be payable or deliverable
in respect of the Subordinated Securities shall be paid or delivered directly to
the holders of Senior Debt in accordance with the priorities then existing among
such holders until all Senior Debt (including any interest thereon accruing
after the commencement of any such proceedings) shall have been paid in full.
(Section 1801 of the Subordinated Indenture)
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Debt, the Holders of Subordinated Securities,
together with the holders of any obligations of the Corporation ranking on a
parity with the Subordinated Securities, shall be entitled to be repaid from the
remaining assets of the Corporation the amounts at the time due and owing on
account of unpaid principal, premium, if any, and interest, if any, on the
Subordinated Securities and such other obligations before any payment or other
distribution, whether in cash, property or otherwise, shall be made on account
of any capital stock or obligations of the Corporation ranking junior to the
Subordinated Securities and such other obligations. If any payment or
distribution on account of the principal of or interest on the Subordinated
Securities of any character or any security, whether in cash, securities or
other property (other than securities of the Corporation or any other
corporation provided for by a plan of reorganization or readjustment the payment
of which is subordinate, at least to the extent provided in the subordination
provisions with respect to the Subordinated Securities, to the payment of all
Senior Debt at the time outstanding and to any securities issued in respect
thereof under any such plan of reorganization or readjustment) shall be received
by any Holder of any Subordinated Securities in contravention of any of the
terms hereof and before all the Senior Debt shall have been paid in full, such
payment or distribution or security shall be received in trust for the benefit
of, and shall be paid over or delivered and transferred to, the holders of the
Senior Debt at the time outstanding in accordance with the priorities then
existing among such holders for application to the payment of all Senior Debt
remaining unpaid to the extent necessary to pay all such Senior Debt in full.
(Section 1801 of the Subordinated Indenture) By reason of such subordination, in
the event of the insolvency of the Corporation, holders of Senior Debt may
receive more, ratably, and holders of the Subordinated Securities having a claim
pursuant to such securities may receive less, ratably, than the other creditors
of the Corporation. Such subordination will not prevent the occurrence of any
Event of Default in respect of the Subordinated Securities.
The Subordinated Indenture may be modified or amended as provided under
'Modification and Waiver' above, provided that no such modification or amendment
may, without the consent of the holders of all Senior Debt outstanding, modify
any of the provisions of the Subordinated Indenture relating to the
subordination of the Subordinated Securities and any related coupons in a manner
adverse to such holders. (Section 902 of the Subordinated Indenture)
CONVERSION OF CONVERTIBLE DEBT SECURITIES
The Holders of Debt Securities of a specified series that are convertible
into Common Stock or Preferred Shares of the Corporation ('Convertible Debt
Securities') will be entitled at certain times specified in the applicable
Prospectus Supplement, subject to prior redemption, repayment or repurchase, to
convert any Convertible Debt Securities of such series (in denominations set
forth in the applicable Prospectus Supplement) into Common Stock or Preferred
Shares, as the case may be, at the conversion price set forth in the applicable
Prospectus Supplement, subject to adjustment as described below and in the
applicable Prospectus Supplement. Except as described below, no adjustment will
be made on conversion of any Convertible Debt Securities for interest accrued
thereon or for dividends on any Common Stock or Preferred Shares issued.
(Section 1803 of the Senior Indenture, Section 1903 of the Subordinated
Indenture) If any Convertible Debt Securities not called for redemption are
converted between a Regular Record Date for the payment of interest and the next
succeeding Interest Payment Date, such Convertible Debt Securities must be
accompanied by funds equal to the interest payable on such succeeding Interest
Payment Date on the principal amount so converted. (Section 1803 of the Senior
Indenture, Section 1903 of the Subordinated Indenture) The Corporation is not
required to issue fractional shares of Common Stock upon conversion of
Convertible Debt Securities that are convertible into Common Stock and, in lieu
thereof, will pay a cash adjustment based upon the Closing
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Price (as defined in the Indenture) of the Common Stock on the last business day
prior to the date of conversion. (Section 1804 of the Senior Indenture, Section
1904 of the Subordinated Indenture) In the case of Convertible Debt Securities
called for redemption, conversion rights will expire at the close of business on
the redemption date. (Section 1802 of the Senior Indenture, Section 1902 of the
Subordinated Indenture)
Unless otherwise indicated in the applicable Prospectus Supplement, the
conversion price for Convertible Debt Securities that are convertible into
Common Stock is subject to adjustment under formulas set forth in the applicable
Indenture in certain events, including: the issuance of the Corporation's
capital stock as a dividend or distribution on the Common Stock; subdivisions
and combinations of the Common Stock; the issuance to all holders of Common
Stock of certain rights or warrants entitling them to subscribe for or purchase
Common Stock within 45 days after the date fixed for the determination of the
stockholders entitled to receive such rights or warrants, at less than the
current market price (as defined in the Indenture); and the distribution to all
holders of Common Stock of evidences of indebtedness or assets of the
Corporation (excluding certain cash dividends and distributions described in the
next paragraph) or rights or warrants (excluding those referred to above).
(Section 1806 of the Senior Indenture, Section 1906 of the Subordinated
Indenture) In the event that the Corporation shall distribute any rights or
warrants to acquire capital stock ('Capital Stock Rights') pursuant to which
separate certificates representing such Capital Stock Rights will be distributed
subsequent to the initial distribution of such Capital Stock Rights (whether or
not such distribution shall have occurred prior to the date of the issuance of a
series of Convertible Debt Securities), such subsequent distribution shall be
deemed to be the distribution of such Capital Stock Rights; provided that the
Corporation may, in lieu of making any adjustment in the conversion price upon a
distribution of separate certificates representing such Capital Stock Rights,
make proper provision so that each Holder of such a Convertible Debt Security
who converts such Convertible Debt Security (or any portion thereof) (a) before
the record date for such distribution of separate certificates shall be entitled
to receive upon such conversion shares of Common Stock issued with Capital Stock
Rights and (b) after such record date and prior to the expiration, redemption or
termination of such Capital Stock Rights shall be entitled to receive upon such
conversion, in addition to the shares of Common Stock issuable upon such
conversion, the same number of such Capital Stock Rights as would a holder of
the number of shares of Common Stock that such Convertible Debt Security so
converted would have entitled the holder thereof to acquire in accordance with
the terms and provisions applicable to the Capital Stock Rights if such
Convertible Debt Security were converted immediately prior to the record date
for such distribution. Common Stock owned by or held for the account of the
Corporation or any majority owned subsidiary shall not be deemed outstanding for
the purpose of any adjustment.
No adjustment in the conversion price of Convertible Debt Securities that
are convertible into Common Stock will be made for regular quarterly or other
periodic or recurring cash dividends or distributions or for cash dividends or
distributions to the extent paid from retained earnings. No adjustment in the
conversion price of Convertible Debt Securities that are convertible into Common
Stock will be required unless such adjustment would require a change of at least
1% in the conversion price then in effect, provided, that any such adjustment
not so made will be carried forward and taken into account in any subsequent
adjustment; and provided further that any such adjustment not so made shall be
made no later than three years after the occurrence of the event requiring such
adjustment to be made or carried forward. The Corporation reserves the right to
make such reductions in the conversion price in addition to those required in
the foregoing provisions as the Corporation in its discretion shall determine to
be advisable in order that certain stock-related distributions hereafter made by
the Corporation to its stockholders shall not be taxable. (Section 1806 of the
Senior Indenture, Section 1906 of the Subordinated Indenture) Except as stated
above, the conversion price will not be adjusted for the issuance of Common
Stock or any securities convertible into or exchangeable for Common Stock or
securities carrying the right to purchase any of the foregoing.
In the case of (i) a reclassification or change of the Common Stock, (ii) a
consolidation or merger involving the Corporation or (iii) a sale or conveyance
to another corporation of the property and assets
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of the Corporation as an entirety or substantially as an entirety, in each case
as a result of which holders of Common Stock shall be entitled to receive stock,
securities, other property or assets (including cash) with respect to or in
exchange for such Common Stock, the Holders of the Convertible Debt Securities
then outstanding that are convertible into Common Stock will be entitled
thereafter to convert such Convertible Debt Securities into the kind and amount
of shares of stock and other securities or property which they would have
received upon such reclassification, change, consolidation, merger, sale or
conveyance had such Convertible Debt Securities been converted into Common Stock
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance. (Section 1807 of the Senior Indenture, Section 1907 of the
Subordinated Indenture)
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the conversion price of
Convertible Debt Securities that are convertible into Common Stock, the Holders
of such Convertible Debt Securities may, in certain circumstances, be deemed to
have received a distribution subject to United States income tax as a dividend;
in certain other circumstances, the absence of such an adjustment may result in
a taxable dividend to the holders of Common Stock or such Convertible Debt
Securities.
EXCHANGE FOR CAPITAL SECURITIES
To the extent set forth in a Prospectus Supplement, a specified series of
Debt Securities may be mandatorily exchangeable for Capital Securities as
described under 'Description of Capital Securities' below.
INFORMATION CONCERNING THE TRUSTEE
The Trustee serves as trustee under indentures for other debt of the
Corporation and as Rights Agent under the Corporation's Rights Agreement,
described in 'Description of Common Stock -- Shareholder Rights Plan,' below.
The Trustee may, from time to time make loans to the Corporation and
perform other services for the Corporation in the normal course of business.
Under the provisions of the Trust Indenture Act of 1939, as recently amended
(the 'Trust Indenture Act'), upon the occurrence of a default under an
indenture, if a trustee has a conflicting interest (as defined in the Trust
Indenture Act) the trustee must, within 90 days, either eliminate such
conflicting interest or resign. Under the provisions of the Trust Indenture Act,
an indenture trustee shall be deemed to have a conflicting interest if the
trustee is a creditor of the obligor. If the trustee fails either to eliminate
the conflicting interest or to resign within 10 days after the expiration of
such 90-day period, the trustee is required to notify debt holders to this
effect and any debt holder who has been a bona fide holder for at least six
months may petition a court to remove the trustee and to appoint a successor
trustee.
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DESCRIPTION OF CAPITAL SECURITIES
The following description of Capital Securities is included in this
Prospectus because a Prospectus Supplement may provide that Capital Securities
will be issuable in exchange for a series of mandatory convertible Debt
Securities or upon conversion of a series of mandatory convertible Preferred
Shares. Whenever Capital Securities are exchangeable for Debt Securities, the
Corporation will be obligated to deliver Capital Securities with a Market Value
(as defined below) equal to the principal amount of such Debt Securities. In
addition, the Corporation will unconditionally undertake to sell the Capital
Securities in a sale (the 'Secondary Offering') on behalf of any Holders who
elect to receive cash for the Capital Securities. The Corporation will bear all
expenses of the Secondary Offering, including underwriting discounts and
commissions. However, there is no assurance that there will be a market for the
Capital Securities when issued or at any time thereafter. If the Corporation
fails to deliver any Capital Securities when required to be delivered, the
Trustee may institute judicial proceedings for (i) specific performance, (ii)
money equal to the principal amount of the Debt Securities for which Capital
Securities were to be exchanged or (iii) any other proper remedy. (Section 503)
If the Corporation fails to effect the Secondary Offering, it will deliver to
the Holders Capital Securities, and not cash, upon exchange of the Debt
Securities. In such event, the Corporation will have no specifically enforceable
obligation to effect the Secondary Offering, but will not be relieved of any
liability for money damages it would have for breach of its obligation to effect
a Secondary Offering of sufficient amounts of Capital Securities. The 'Market
Value' of any Capital Securities means their sale price in the Secondary
Offering. If the Corporation does not effect the Secondary Offering, the Market
Value of such Capital Securities shall be their fair value when exchanged as
determined by three independent nationally recognized investment banking firms
selected by the Corporation.
Whenever Preferred Shares are mandatorily convertible into Capital
Securities, the Corporation will be obligated to deliver Capital Securities in
an amount either based upon a conversion price or with a required conversion
value. The conversion value will be determined by then market prices, by an
auction or bidding procedure or by such other method as set forth in the
applicable Prospectus Supplement.
The staff of the Commission has advised that Rules 13e-4 and 14e-1 of the
Commission's rules and regulations relating to tender offers by issuers, as
currently in effect and interpreted, would be applicable to the exchange of
Capital Securities for Debt Securities of any series and the Secondary Offering.
If, at the time of the exchange of Capital Securities for Debt Securities of any
series and the Secondary Offering, Rule 13e-4 or Rule 14e-1 (or any successor
rule or rules) applies to such transactions, the Corporation will comply with
such rule (or any successor rule or rules) and will afford holders of such Debt
Securities all rights and will make all filings required by such rule (or
successor rule or rules). Rule 13e-4 and Rule 14e-1 may also be deemed to apply
to mandatorily convertible Preferred Shares.
The Capital Securities may consist of Common Stock, Perpetual Preferred
Stock (as defined below) or other capital securities of the Corporation
acceptable to its primary federal regulator. All Capital Securities which will
be exchangeable for Debt Securities or issuable upon conversion of Preferred
Shares will, upon issuance, be duly authorized, validly issued and, if
applicable, fully paid and nonassessable. The Common Stock of the Corporation is
described below under 'Description of Common Stock.'
The Corporation may select any preferred stock ('Perpetual Preferred
Stock') that is not mandatorily, or at the option of the holder, redeemable or
repayable, otherwise than in shares of Common Stock or Perpetual Preferred Stock
of another class or series or with the proceeds of the sale of Common Stock or
Perpetual Preferred Stock, as Capital Securities to be exchanged for Debt
Securities or issued upon conversion of Preferred Shares. Any shares of
Perpetual Preferred Stock to be so issued will have such designations,
preferences, dividend and other rights, qualifications, limitations and
restrictions as may be determined by the Corporation and approved by the Board
of Directors. A general description of the preferred stock of the Corporation is
set forth below under 'Description of Preferred Shares.'
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The Corporation may also select any other securities to be exchanged for
Debt Securities or issued upon conversion of Preferred Shares which qualify at
the time of exchange or conversion as Capital Securities as determined by the
Corporation's primary federal regulator. Such other Capital Securities will have
such terms as may be determined by the Corporation.
DESCRIPTION OF PREFERRED SHARES
The following description of the terms of the Preferred Shares sets forth
certain general terms and provisions of the Preferred Shares offered by any
Prospectus Supplement, and the extent, if any, to which such general provisions
may apply to the Preferred Shares so offered will be described in the Prospectus
Supplement relating to such Preferred Shares. The description of certain
provisions of the Preferred Shares set forth below and in the Prospectus
Supplement does not purport to be complete and is subject to and qualified in
its entirety by reference to the Certificate of Designation relating to the
particular series of Preferred Shares, which will be filed with the Commission
at or prior to the time of the sale of such Preferred Shares.
GENERAL
Under the Corporation's Certificate of Incorporation, the Board of
Directors of the Corporation is authorized without further stockholder action to
adopt resolutions providing for the issuance of up to 7,500,000 shares of
preferred stock (the 'Preferred Stock'), in one or more series, with such voting
powers, full or limited, and with such par value, designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions, as may be determined by the Board of Directors. As
of December 31, 1993, the Corporation had no shares of Preferred Stock issued
and outstanding.
The Preferred Shares shall have the dividend, liquidation redemption,
voting rights and, if applicable, conversion rights set forth below unless
otherwise provided in the Prospectus Supplement relating to a particular series
of Preferred Shares. Reference is made to the Prospectus Supplement relating to
the particular series of Preferred Shares offered thereby for specific terms,
including, where applicable: (i) the title of such Preferred Shares; (ii) the
price at which such Preferred Shares will be issued; (iii) the dividend rates
and dates on which dividends shall be payable, as well as the dates from which
dividends shall commence to cumulate; (iv) the dates on which the Preferred
Shares will be subject to redemption and the redemption price, (v) any mandatory
redemption or sinking fund provisions; (vi) any rights on the part of the holder
to convert the Preferred Shares into shares of Common Stock; (vii) any
provisions for the mandatory conversion of such Preferred Shares into Capital
Securities; and (viii) any additional dividend, liquidation, redemption, sinking
fund, voting and other rights, preferences, privileges, limitations and
restrictions; and (ix) the terms of any securities being offered together with
or separately from such Preferred Shares. The Preferred Shares will be fully
paid and nonassessable, and for each share issued, a sum equal to the par value
(if any) will be credited to the Corporation's preferred stock account.
DIVIDENDS
Holders of Preferred Shares will be entitled to receive cash dividends,
when and as declared by the Board of Directors of the Corporation out of assets
of the Corporation legally available for payment, at such rates and on such
dates as will be set forth in the applicable Prospectus Supplement. Each
dividend will be payable to holders of record as they appear on the stock books
of the Corporation on the record dates fixed by the Board of Directors of the
Corporation. Dividends will be cumulative from and after the date set forth in
the applicable Prospectus Supplement. If, for any dividend period or periods,
full cumulative dividends on any shares of preferred stock have not been paid or
declared and set apart for payment or the Corporation is in default or in
arrears with respect to any sinking fund or other arrangement for the purchase
or redemption of any shares of preferred stock, the Corporation may not declare
any dividends on, or make any payment on account of the purchase, redemption or
other retirement of, its Common Stock or any other stock of the Corporation
ranking as
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to dividends or distribution of assets junior to the preferred stock. If
dividends on Preferred Shares are in arrears, and there shall be outstanding
shares of any other series of preferred stock ranking on a parity as to
dividends with the Preferred Shares, the Corporation, in making any dividend
payment on account of such arrears, is required to make payments ratably upon
all outstanding Preferred Shares and shares of such other series of preferred
stock in proportion to the respective amounts of dividends in arrears on such
Preferred Shares and shares of such other series of preferred stock. See
'Supervision and Regulation' for a description of certain legal restrictions
placed on the ability of the Corporation's banking subsidiaries to provide funds
to the Corporation.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the holders of Preferred Shares will be entitled
to receive out of assets of the Corporation available for distribution to
stockholders, before any distribution of assets is made to holders of Common
Stock, liquidating distributions in the amount of the par value per share (as
set forth in the applicable Prospectus Supplement) plus all accrued and unpaid
dividends. If, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the amounts payable with respect to the Preferred
Shares and any other shares of stock of the Corporation ranking as to any such
distribution on a parity with the Preferred Shares are not paid in full, the
holders of the Preferred Shares and of such other shares will share ratably in
any such distribution of assets of the Corporation in proportion to the full
respective preferential amounts to which they are entitled. After payment of the
full amount of the liquidating distribution to which they are entitled, the
holder of Preferred Shares will not be entitled to any further participation in
any distribution of assets by the Corporation. A consolidation or merger of the
Corporation with or into any other corporation or corporations or a sale of all
or substantially all of the assets of the Corporation shall not be deemed to be
liquidation, dissolution or winding up of the Corporation.
REDEMPTION
The Preferred Shares will be redeemable in whole or in part, at the option
of the Corporation, at the times and at the redemption prices set forth in the
applicable Prospectus Supplement.
The Corporation may not redeem less than all the outstanding shares of any
series of Preferred Shares unless full cumulative dividends have been paid or
declared and set apart for payment upon all outstanding shares of such series of
Preferred Shares for all past dividend periods, and unless all matured
obligations of the Corporation with respect to all sinking funds, retirement
funds or purchase funds for all series of preferred stock then outstanding have
been met.
VOTING RIGHTS
Except as indicated below or in the applicable Prospectus Supplement, or
except as expressly required by applicable law, the holders of the Preferred
Shares will not be entitled to vote.
If the equivalent of six quarterly dividends payable on any series of the
Preferred Shares or any other series of preferred stock are in default (whether
or not declared or consecutive), the holders of all outstanding series of
preferred stock, voting as a single class with regard to series, will be
entitled to elect two directors until all dividends in default have been paid or
declared and set apart for payment.
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of the Preferred Shares and any other series of preferred
stock, voting as a single class without regard to series, will be required (i)
for any amendment of the Corporation's Certificate of Incorporation (or any
certificate supplemental thereto providing for the capital stock of the
Corporation) or Bylaws that will materially and adversely change the
preferences, privileges, rights, or powers of the preferred stock, but, in any
case in which one or more, but not all, series of preferred stock would be so
affected as to their preferences, privileges, rights or powers, only the consent
of holders of at least two-thirds of the shares of each series that would be so
affected, voting separately as a class, shall be required or (ii) to issue
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any class of stock that shall have preference as to dividends or distribution of
assets over any outstanding series of preferred stock.
All stockholder action must be taken at a meeting. Stockholder action by
written consent is not permitted.
The Corporation's Certificate of Incorporation may be amended to increase
the number of authorized shares of the preferred stock without the vote of the
holders of outstanding Preferred Shares.
PREFERRED STOCK CONVERSION RIGHTS
The Prospectus Supplement for any series of Preferred Shares will state
whether shares in that series are convertible into Common Stock. See
'Description of Capital Stock,' below. Unless otherwise provided in the
applicable Prospectus Supplement, if a series of Preferred Shares is convertible
into shares of Common Stock ('Convertible Preferred Shares'), holders of such
Convertible Preferred Shares will have the right, at their option and at any
time, to convert any of such Convertible Preferred Shares, initially at the
conversion rate set forth in the Prospectus Supplement relating to such
Convertible Preferred Shares, provided that if such series of Convertible
Preferred Shares is called for redemption, the conversion rights pertaining
thereto will terminate at the close of business on the date fixed for
redemption. No fractional shares will be issued upon conversion of the
Convertible Preferred Shares, but if such conversion results in a fraction, an
equivalent amount will be paid in cash by the Corporation, based on the Closing
Price, as defined in the Certificate of Designation for such series of
Convertible Preferred Shares, of the Common Stock on the business day
immediately preceding the day on which the Convertible Preferred Shares are
converted.
Unless otherwise indicated in the applicable Prospectus Supplement, the
conversion rate is subject to adjustment in certain events, including: the
issuance of capital stock as a dividend or distribution on the Common Stock;
subdivisions and combinations of the Common Stock; the issuance to all holders
of Common Stock of certain rights or warrants entitling them to subscribe for or
purchase Common Stock (or securities convertible into Common Stock) within 45
days after the date fixed for the determination of the stockholders entitled to
receive such rights or warrants, at less than the current market price (as
defined in the Certificate of Designation for such series of Convertible
Preferred Shares); and the distribution to all holders of Common Stock of
evidences of indebtedness or assets of the Corporation (excluding certain cash
dividends and distributions described below) or rights or warrants (excluding
those referred to above).
In the event that the Corporation shall distribute any Rights pursuant to
which separate certificates representing such Rights will be distributed
subsequent to the initial distribution of such Rights (whether or not such
distribution shall have occurred prior to the date of the issuance of a series
of Convertible Preferred Shares), such subsequent distribution shall be deemed
to be the distribution of such Rights; provided, that the Corporation may, in
lieu of making any adjustment in the conversion rate upon a distribution of
separate certificates representing such Rights, make proper provision so that
each holder of such a Convertible Preferred Share who converts such Convertible
Preferred Share (or any portion thereof) (a) before the record date for such
distribution of separate certificates shall be entitled to receive upon such
conversion shares of Common Stock issued with Rights and (b) after such record
date and prior to the expiration, redemption or termination of such Rights shall
be entitled to receive upon such conversion, in addition to the shares of Common
Stock issuable upon such conversion, the same number of such Rights as would a
holder of the number of shares of Common Stock that such Convertible Preferred
Share so converted would have entitled the holder thereof to acquire in
accordance with the terms and provisions applicable to the Rights if such
Convertible Preferred Share were converted immediately prior to the record date
for such distribution. Common Stock owned by or held for the account of the
Corporation or any majority owned subsidiary shall not be deemed outstanding for
the purpose of any adjustment.
No adjustment in conversion rate will be made for regular quarterly or
other periodic or recurring cash dividends or distributions or for cash
distributions to the extent paid from retained earnings. No adjustment in the
Conversion Price will be required unless such adjustment would require a change
of
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at least 1% in the Conversion Price then in effect or a period of three years
shall have elapsed from the date of occurrence of any event requiring any such
adjustment; provided, that any adjustment that would otherwise be required to be
made shall be carried forward and taken into account in any subsequent
adjustment. Notwithstanding any of the foregoing, neither the issuance of Common
Stock under the Corporation's Dividend Reinvestment Plan or any successor plans
providing for the purchase of shares of Common Stock by the Corporation's
securityholders or employees at a price not less than 90% of the 'fair market
value' of the Common Stock as such term, or equivalent term, is defined in, and
as calculated pursuant to, such plans from time to time, nor the granting of any
rights thereunder, shall require an adjustment to the conversion rate. The
Corporation reserves the right to make such increases in the conversion rate in
addition to those required in the foregoing provisions as the Corporation, in
its discretion, shall determine to be advisable in order that certain stock
related distributions hereafter made by the Corporation to its stockholders
shall not be taxable. Except as stated above, the conversion rate will not be
adjusted for the issuance of Common Stock or any securities convertible into or
exchangeable for Common Stock, or securities carrying the right to purchase any
of the foregoing.
In the case of (i) any reclassification or change of the Common Stock, or
(ii) a consolidation or merger involving the Corporation, or (iii) a sale or
conveyance to another corporation of the property and assets of the Corporation
as an entirety or substantially as an entirety, in each case as a result of
which holders of Common Stock shall be entitled to receive stock, securities,
other property or assets (including cash) with respect to or in exchange for
such Common Stock, the holders of the Convertible Preferred Shares then
outstanding will be entitled thereafter to convert such Convertible Preferred
Shares into the kind and amount of shares of stock and other securities or
property which they would have received upon such reclassification, change,
consolidation, merger, combination, sale or conveyance.
If at any such time the Corporation makes a distribution of property to its
shareholders that would be taxable to such shareholders as a dividend for
federal income tax purposes (for example, distributions of evidences of
indebtedness or assets of the Corporation, but generally not stock dividends or
rights to subscribe to capital stock) and, pursuant to the antidilution
provisions described above, the conversion rate of the Convertible Preferred
Shares is increased, such increase may be deemed to be the receipt of taxable
income by Holders of the Convertible Preferred Shares.
OUTSTANDING PREFERRED STOCK
The Preferred Shares will rank on a parity in all respects with the
outstanding preferred stock of the Corporation. The Common Stock, including
Common Stock that may be issued upon conversion of the Preferred Shares or in
exchange for or upon conversion of Subordinated Debt Securities, will be subject
to any prior rights of the preferred stock then outstanding. Therefore, the
rights of any other preferred stock that may be subsequently issued may limit
the rights of the holders of the Preferred Shares. The Corporation presently has
no outstanding shares of preferred stock, but the Corporation has issued to each
holder of Common Stock the right to acquire a series of preferred stock in
certain circumstances. (See 'Shareholder Rights Plan' herein.)
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital of Sovereign consists of 100,000,000 shares of
Common Stock, no par value, and 7,500,000 shares of preferred stock, such
preferred stock to be issuable, in series and classes having such par value,
rights, preferences, privileges and restrictions as the Board of Directors of
Sovereign may determine. Except as described below, each share of Common Stock
will have the same relative rights as, and will be identical in all respects
with, each other share of Common Stock.
The following summaries of certain provisions of the Corporation's Articles
of Incorporation, as amended, and Bylaws and the Rights Agreement (defined
below) do not purport to be complete and are
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qualified in their entirety by reference to such instruments, each of which is
an exhibit to the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Voting Rights. Prior to the issuance of any preferred stock which possesses
voting rights (see 'Preferred Stock' below), the holders of the Common Stock
will possess exclusive voting rights in Sovereign. Each holder of shares of
Common Stock will be entitled to one vote for each share held on matters upon
which stockholders have the right to vote. Stockholders will not be entitled to
cumulate their votes for the election of directors.
The holders of Common Stock are entitled to share ratably in dividends when
and if declared by the Board of Directors of Sovereign from funds legally
available therefor. Payment of dividends by Sovereign is dependent upon dividend
payments to Sovereign by its subsidiaries, which payments are subject to
regulatory restrictions. See 'Supervision and Regulation -- Restrictions on
Capital Distributions.' Payment of dividends by Sovereign is also subject to
certain limitations imposed by a loan agreement between Sovereign and an
institutional lender. See 'Supervision and Regulation -- Restrictions on Capital
Distributions.'
Liquidation. In the event of any liquidation, dissolution, or winding up of
Sovereign, after payment of all debts and liabilities of Sovereign and payment
of any liquidation preference plus accrued dividends applicable to any
outstanding shares of preferred stock, the holders of the Common Stock will be
entitled to receive all assets of Sovereign available for distribution in cash
or in kind.
Preemptive Rights; Redemption. Holders of the Common Stock will not be
entitled to preemptive rights with respect to any shares of Sovereign which may
be issued. The Common Stock will not be subject to redemption. Upon receipt by
Sovereign of the full specified purchase price therefor, the Common Stock will
be fully paid and nonassessable.
PREFERRED STOCK
Sovereign's Board of Directors is authorized to approve the issuance of
preferred stock, without any required approval of stockholders. The rights,
qualifications, limitations and restrictions of each series of preferred stock
issued will be determined by the Board of Directors at the time of issuance and
may include, among other things, rights to participating dividends, voting and
convertibility into the Common Stock. Shares of preferred stock may be issued
with dividend, redemption, voting, and liquidation rights taking priority over
Common Stock, and may be convertible into Common Stock, as determined by the
Board of Directors at the time of issuance.
SHAREHOLDER RIGHTS PLAN
Sovereign maintains a Shareholder Rights Plan (the 'Rights Plan') designed
to protect shareholders from attempts to acquire control of Sovereign at an
inadequate price. Under the Rights Plan, each outstanding share of the Common
Stock has attached to it one right to purchase one one-hundredth of a share of a
series of junior participating preferred stock at an initial exercise price of
$80. The rights are not currently exercisable or transferable, and no separate
certificates evidencing such rights will be distributed, unless certain events
occur.
The rights become exercisable to purchase shares of the junior
participating preferred stock if a person, group or other entity acquires or
commences a tender offer or an exchange offer for 19.9% or more of total voting
power (or 29.9% in the case of natural persons with SEC filings on September 19,
1989 indicating 5% or more beneficial ownership of the Common Stock). They can
also be exercised if a person or group who has become a beneficial owner of at
least 4.9% of the Common Stock or total voting power (except for shares covered
by SEC filings on September 19, 1989 indicating 5% or more beneficial ownership
of the Common Stock) is declared by Sovereign's Board of Directors to be an
'adverse person,' as defined in the Rights Plan. At September 19, 1989,
Frederick J. Jaindl had made an SEC filing indicating 5% or more ownership of
the Common Stock.
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After the rights become exercisable, under certain circumstances, the
rights (other than rights held by a 19.9% or 29.9% beneficial owner, as the case
may be, or an 'adverse person') will entitle the holders to purchase either the
Common Stock or the common stock of the potential acquirer, in lieu of the
junior participating preferred stock, at a substantially reduced price.
Sovereign is generally entitled to redeem the rights at $.001 per right at
any time until the tenth business day following the public announcement that a
19.9% (or 29.9%, as the case may be) position has been acquired. At any time
prior to the date the rights have become nonredeemable, the Board can extend the
redemption period. Rights are not redeemable following an 'adverse person'
determination.
ARTICLES OF INCORPORATION AND BYLAWS
Sovereign's Articles of Incorporation and Bylaws contain certain provisions
which may have the effect of deterring or discouraging, among other things, a
non-negotiated tender or exchange offer for the Common Stock, a proxy contest
for control of Sovereign, the assumption of control of Sovereign by a holder of
a large block of the Common Stock and the removal of Sovereign's management.
These provisions: (1) empower the Board of Directors, without shareholder
approval, to issue preferred stock the terms of which, including voting power,
are set by the Board; (2) divide the Board of Directors into three classes
serving staggered three-year terms; (3) restrict the ability of shareholders to
remove directors; (4) require that shares with at least 80% of total voting
power approve mergers and other similar transactions with a person or entity
holding stock with more than 5% of Sovereign's voting power, if the transaction
is not approved, in advance, by the Board of Directors; (5) prohibit
shareholders' actions without a meeting; (6) require that shares with at least
80%, or in certain instances a majority, of total voting power approve the
repeal or amendment of the Articles of Incorporation; (7) require any person who
acquires stock of Sovereign with voting power of 25% or more to offer to
purchase for cash all remaining shares of Sovereign's voting stock at the
highest price paid by such person for shares of Sovereign's voting stock during
the preceding year; (8) eliminate cumulative voting in elections of directors;
(9) require that shares with at least 66 2/3% of total voting power approve,
repeal or amend the Bylaws; (10) require advance notice of nominations for the
election of directors and the presenting of shareholder proposals at meetings of
shareholders; and (11) provide that officers, directors, employees, agents and
persons who own 5% or more of the voting securities of any other corporation or
other entity that owns 66 2/3% or more of Sovereign's outstanding voting stock
cannot constitute a majority of the members of Sovereign's Board of Directors.
PENNSYLVANIA LAW
The Pennsylvania Business Corporation Law contains certain provisions
applicable to Sovereign which may have similar effects. These provisions, among
other things: (1) require that, following any acquisition by any person or group
of 20% of a public corporation's voting power, the remaining stockholders have
the right to receive payment for their shares, in cash, from such person or
group in an amount equal to the 'fair value' of the shares, including an
increment representing a proportion of any value payable for control of the
corporation; and (2) prohibit for five years, subject to certain exceptions, a
'business combination' (which includes a merger or consolidation of the
corporation or a sale, lease or exchange of assets) with a stockholder or group
of stockholders beneficially owning 20% or more of a public corporation's voting
power.
In April 1990, Pennsylvania adopted legislation further amending the
Pennsylvania Business Corporation Law. To the extent applicable to Sovereign at
the present time, this legislation generally (1) expands the factors and groups
(including shareholders) which the Board of Directors can consider in
determining whether a certain action is in the best interests of the
corporation, (2) provides that the Board need not consider the interests of any
particular group as dominant or controlling, (3) provides that directors, in
order to satisfy the presumption that they have acted in the best interests of
the corporation, need not satisfy any greater obligation or higher burden of
proof with respect to actions relating to an acquisition or potential
acquisition of control, (4) provides that actions relating to acquisitions of
control that are approved by a majority of 'disinterested directors' are
presumed to
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satisfy the directors' standard unless it is proved by clear and convincing
evidence that the directors did not assent to such action in good faith after
reasonable investigation, and (5) provides that the fiduciary duty of directors
is solely to the corporation and may be enforced by the corporation or by a
shareholder in a derivative action, but not by a shareholder directly. One of
the effects of the new fiduciary duty provisions may be to make it more
difficult for a shareholder to successfully challenge the actions of the Board
of Directors in a potential change in control context. Sovereign opted out of
coverage by the disgorgement and control-share acquisition statutes, also
adopted in April 1990, pursuant to a Bylaw amendment as permitted by the
legislation; Sovereign can reverse this action under certain circumstances.
DESCRIPTION OF SECURITIES WARRANTS
The Corporation may issue Securities Warrants for the purchase of Debt
Securities, Preferred Shares or Common Stock. Securities Warrants may be issued
independently or together with Common Stock, Debt Securities or Preferred Shares
offered by any Prospectus Supplement and may be attached to or separate from
such Common Stock, Debt Securities or Preferred Shares. Each series of
Securities Warrants will be issued under a separate warrant agreement (a
'Securities Warrant Agreement') to be entered into between the Corporation and a
bank or trust corporation, as Securities Warrant Agent, all as set forth in the
Prospectus Supplement relating to the particular issue of offered Securities
Warrants. The Securities Warrant Agent will act solely as an agent of the
Corporation in connection with the Securities Warrant Certificates and will not
assume any obligation or relationship of agency or trust for or with any holders
of Securities Warrant Certificates or beneficial owners of Securities Warrants.
Copies of the forms of Securities Warrant Agreements, including the forms of
Securities Warrant Certificates representing the Securities Warrants, are filed
as exhibits to the Registration Statement to which this Prospectus pertains. The
following summaries of certain provisions of the forms of Securities Warrant
Agreements and Securities Warrant Certificates do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all the
provisions of the Securities Warrant Agreements and the Securities Warrant
Certificates.
GENERAL
If Securities Warrants are offered, the applicable Prospectus Supplement
will describe the terms of such Securities Warrants, including, in the case of
Securities Warrants for the purchase of Debt Securities, the following where
applicable: (i) the offering price; (ii) the currencies in which such Securities
Warrants are being offered; (iii) the designation, aggregate principal amount,
currencies, denominations and terms of the series of Debt Securities purchasable
upon exercise of such Securities Warrants; (iv) the designation and terms of any
series of Debt Securities or Preferred Shares with which such Securities
Warrants are being offered and the number of such Securities Warrants being
offered with each such share of Common Stock, Debt Security or Preferred Share;
(v) the date on and after which such Securities Warrants and the related Common
Stock or series of Debt Securities or Preferred Shares will be transferable
separately; (vi) the principal amount of the series of Debt Securities
purchasable upon exercise of each such Securities Warrant and the price at which
and currencies in which such principal amount of Debt Securities of such series
may be purchased upon such exercise; (vii) the date on which the right to
exercise such Securities Warrants shall commence and the date (the 'Expiration
Date') on which such right shall expire; (viii) whether the Securities Warrants
will be issued in registered or bearer form; (ix) United States federal income
tax consequences; and (x) any other terms of such Securities Warrants.
In the case of Securities Warrants for the purchase of Preferred Shares or
Common Stock, the applicable Prospectus Supplement will describe the terms of
such Securities Warrants, including the following where applicable: (i) the
offering price; (ii) the aggregate number of shares purchasable upon exercise of
such Securities Warrants and, in the case of Securities Warrants for Preferred
Shares, the designation, aggregate number and terms of the series of Preferred
Shares purchasable upon exercise of such Securities Warrants; (iii) the
designation and terms of the series of Common Stock, Debt Securities or
Preferred Shares with which such Securities Warrants are being offered and the
number
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of such Securities Warrants being offered with each share of Common Stock or
such Debt Security or Preferred Share; (iv) the date on and after which such
Securities Warrants and the related Common Stock or series of Debt Securities or
Preferred Shares will be transferable separately; (v) the number of Preferred
Shares or shares of Common Stock purchasable upon exercise of each such
Securities Warrant and the price at which such number of Preferred Shares of
such series or shares of Common Stock may be purchased upon such exercise; (vi)
the date on which the right to exercise such Securities Warrants shall commence
and the Expiration Date on which such right shall expire; (vii) United States
federal income tax consequences; and (viii) any other terms of such Securities
Warrants. Securities Warrants for the purchase of Preferred Shares, or Common
Stock will be offered and exercisable for U.S. dollars only and will be in
registered form only.
Securities Warrant Certificates may be exchanged for new Securities Warrant
Certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Securities Warrant Agent or any other office indicated in
the applicable Prospectus Supplement. Prior to the exercise of any Securities
Warrant to purchase Debt Securities, holders of such Securities Warrants will
not have any of the rights of Holders of the Debt Securities purchasable upon
such exercise, including the right to receive payments of principal of, premium,
if any, or interest, if any, on the Debt Securities purchasable upon such
exercise or to enforce covenants in the applicable indenture. Prior to the
exercise of any Securities Warrants to purchase Preferred Shares or Common
Stock, holders of such Securities Warrants will not have any rights of holders
of the Preferred Shares or Common Stock purchasable upon such exercise,
including the right to receive payments of dividends, if any, on the Preferred
Shares or Common Stock purchasable upon such exercise or to exercise any
applicable right to vote.
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase such
principal amount of Debt Securities or number of Preferred Shares or shares of
Common Stock, as the case may be, at such exercise price as shall in each case
be set forth in, or calculable from the Prospectus Supplement relating to the
offered Securities Warrants. After the close of business on the Expiration Date
(or such later date to which such Expiration Date may be extended by the
Corporation), unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivering to the Securities
Warrant Agent payment as provided in the applicable Prospectus Supplement of the
amount required to purchase the Debt Securities, Preferred Shares or Common
Stock, as the case may be, purchasable upon such exercise together with certain
information set forth on the reverse side of the Securities Warrant Certificate.
Securities Warrants will be deemed to have been exercised upon receipt of
payment of the exercise price, subject to the receipt, within five business
days, of the Securities Warrant Certificate evidencing such Securities Warrants.
Upon receipt of such payment and the Securities Warrant Certificate properly
completed and duly executed at the corporate trust office of the Securities
Warrant Agent or any other office indicated in the applicable Prospectus
Supplement, the Corporation will, as soon as practicable, issue and deliver the
Debt Securities, Preferred Shares or Common Stock, as the case may be,
purchasable upon such exercise. If fewer than all of the Securities Warrants
represented by such Securities Warrant Certificate are exercised, a new
Securities Warrant Certificate will be issued for the remaining amount of
Securities Warrants.
AMENDMENTS AND SUPPLEMENTS TO SECURITIES WARRANT AGREEMENTS
The Securities Warrant Agreements may be amended or supplemented without
the consent of the holders of the Securities Warrants issued thereunder to
effect changes that are not inconsistent with the provisions of the Securities
Warrants and that do not adversely affect the interests of the holders of the
Securities Warrants.
29
<PAGE>
COMMON STOCK WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of shares of Common Stock covered by, a Common
Stock Warrant are subject to adjustment in certain events, including: (i) the
issuance of Common Stock as a dividend or distribution on the Common Stock; (ii)
subdivisions and combinations of the Common Stock; (iii) the issuance to all
holders of Common Stock of certain rights or warrants entitling them to
subscribe for or purchase Common Stock within 45 days after the date fixed for
the determination of the stockholders entitled to receive such rights or
warrants, at less than the current market price (as defined in the Warrant
Agreement for such series of Common Stock Warrants); and (iv) the distribution
to all holders of Common Stock of evidences of indebtedness or assets of the
Corporation (excluding certain cash dividends and distributions described below)
or rights or warrants (excluding those referred to above). In the event that the
Corporation shall distribute any rights or warrants to acquire capital stock
pursuant to clause (iii) above (the 'Capital Stock Rights'), pursuant to which
separate certificates representing such Capital Stock Rights will be distributed
subsequent to the initial distribution of such Capital Stock Rights (whether or
not such distribution shall have occurred prior to the date of the issuance of a
series of Common Stock Warrants), such subsequent distribution shall be deemed
to be the distribution of such Capital Stock Rights; provided that the
Corporation may, in lieu of making any adjustment in the exercise price of, and
the number of shares of Common Stock covered by, a Common Stock Warrant upon a
distribution of separate certificates representing such Capital Stock Rights,
make proper provision so that each holder of such a Common Stock Warrant who
exercises such Common Stock Warrant (or any portion thereof) (a) before the
record date for such distribution of separate certificates shall be entitled to
receive upon such exercise shares of Common Stock issued with Capital Stock
Rights and (b) after such record date and prior to the expiration, redemption or
termination of such Capital Stock Rights shall be entitled to receive upon such
exercise, in addition to the shares of Common Stock issuable upon such exercise,
the same number of such Capital Stock Rights as would a holder of the number of
shares of Common Stock that such Common Stock Warrants so exercised would have
entitled the holder thereof to acquire in accordance with the terms and
provisions applicable to the Capital Stock Rights if such Common Stock Warrant
was exercised immediately prior to the record date for such distribution. Common
Stock owned by or held for the account of the Corporation or any majority owned
subsidiary shall not be deemed outstanding for the purpose of any adjustment.
No adjustment in the exercise price of, and the number of shares of Common
Stock covered by, a Common Stock Warrant will be made for regular quarterly or
other periodic or recurring cash dividends or distributions or for cash
dividends or distributions to the extent paid from retained earnings. No
adjustment will be required unless such adjustment would require a change of at
least 1% in the exercise price then in effect; provided that any such adjustment
not so made will be carried forward and taken into account in any subsequent
adjustment; and provided further that any such adjustment not so made shall be
made no later than three years after the occurrence of the event requiring such
adjustment to be made or carried forward. Except as stated above, the exercise
price of, and the number of shares of Common Stock covered by, a Common Stock
Warrant will not be adjusted for the issuance of Common Stock or any securities
convertible into or exchangeable for Common Stock, or securities carrying the
right to purchase any of the foregoing.
In the case of (i) a reclassification or change of the Common Stock, (ii) a
consolidation or merger involving the Corporation or (iii) sale or conveyance to
another corporation of the property and assets of the Corporation as an entirety
or substantially as an entirety, in each case as a result of which holders of
the Corporation's Common Stock shall be entitled to receive stock, securities,
other property or assets (including cash) with respect to or in exchange for
such Common Stock, the holders of the Common Stock Warrants then outstanding
will be entitled thereafter to convert such Common Stock Warrants into the kind
and amount of shares of stock and other securities or property which they would
have received upon such reclassification, change, consolidation, merger, sale or
conveyance had such Common Stock Warrants been exercised immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance.
30
<PAGE>
CERTAIN TAX CONSIDERATIONS
The Prospectus Supplement may contain information concerning certain tax
considerations relating to the Offered Securities. Holders of Offered Securities
should consult their tax advisors as to the applicability to the Offered
Securities and interest or dividends, if any, payable thereon of federal, state
and local taxes.
PLAN OF DISTRIBUTION
The Corporation may offer and sell the Offered Securities in any of three
ways: (i) through agents; (ii) through underwriters or dealers; or (iii)
directly to one or more purchasers. The Prospectus Supplement with respect to
any of the Offered Securities will set forth the terms of the offering of such
Offered Securities, including the name or names of any underwriters or agents,
the purchase price of such Offered Securities, the proceeds to the Corporation
from such sale, any underwriting discounts or agency fees and other items
constituting underwriters' or agents' compensation, the initial public offering
price, any discounts or concessions allowed or reallowed or paid to dealers, and
any securities exchanges on which such Offered Securities may be listed.
The distribution of the Offered Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices.
The Corporation may also issue contracts under which the counterparty may
be required to purchase Common Stock, Debt Securities, or Preferred Shares. Such
contracts would be issued with Common Stock, Debt Securities, Preferred Shares,
and/or Securities Warrants in amounts, at prices and on terms to be set forth in
a Prospectus Supplement. See 'Plan of Distribution.'
If so indicated in the Prospectus Supplement relating to any Offered
Securities, the Corporation will authorize underwriters, dealers and agents to
solicit offers by certain specified institutions to purchase such Offered
Securities from the Corporation at the public offering price set forth in such
Prospectus Supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. Such contracts will be
subject only to those conditions set forth in such Prospectus Supplement, and
such Prospectus Supplement will set forth the commission payable for
solicitation of such contracts.
Underwriters, dealers and agents may be entitled, under agreements entered
into with the Corporation, to indemnification by the Corporation against certain
civil liabilities, including liabilities under the Securities Act of 1933, or to
contributions with respect to payments which the underwriters or agents may be
required to make in respect thereof. Underwriters and agents, and affiliates
thereof, may be customers of, engage in transactions with, or perform services
for the Corporation and its affiliates in the ordinary course of business.
Each underwriter, dealer and agent participating in the distribution of any
Debt Securities that are issuable as Bearer Securities will agree that, in
connection with the original issuance of such Bearer Securities, it will not
offer, sell or deliver, directly or indirectly, Bearer Securities to a United
States person or to any person within the United States, except to the extent
permitted under United States Treasury Regulations.
Except for Common Stock, all Offered Securities will be new issues of
securities with no established trading market. Any underwriters to whom Offered
Securities are sold by the Corporation for public offering and sale may make a
market in such Offered Securities, but such underwriters will not be obligated
to do so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for any Offered
Securities.
31
<PAGE>
LEGAL MATTERS
The legality of the Offered Securities and, if any Offered Securities are
by their terms convertible into Common Stock, the Common Stock into which the
Offered Securities may be converted, will be passed upon for the Corporation by
Stevens & Lee, 607 Washington Street, Reading, Pennsylvania 19601, special
counsel to the Corporation. Joseph E. Lewis, a director of the Bank, is a
principal of the firm of Stevens & Lee. At December 31, 1993, certain attorneys
at Stevens & Lee and members of their immediate families owned or had investment
discretion with respect to an aggregate of less than 150,000 shares of Common
Stock. Unless otherwise indicated in the Prospectus Supplement relating thereto,
if the Offered Securities are being distributed in an underwritten offering,
certain legal matters with respect to the Offered Securities and, if the Offered
Securities are by their terms convertible or exchangeable, the securities into
which the Offered Securities may be converted or exchanged, will be passed upon
for the underwriters by the law firm named in such Prospectus Supplement as
representing the underwriters.
EXPERTS
The consolidated financial statements of Sovereign Bancorp, Inc. at
December 31, 1993 and 1992 and for each of the three years in the period ended
December 31, 1993 appearing in Sovereign Bancorp, Inc.'s Current Report on Form
8-K dated March 8, 1994 and incorporated by reference in this Registration
Statement have been audited by Ernst & Young, independent auditors, as set forth
in their report thereon incorporated herein by reference which, as to the years
1992 and 1991 is based in part on the report of Deloitte & Touche, independent
auditors. The consolidated financial statements referred to above are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.
32
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY SOVEREIGN OR THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF SOVEREIGN SINCE THE DATE HEREOF. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUPPLEMENT
Sovereign....................................... S-3
Recent Developments............................. S-3
Use of Proceeds................................. S-4
Consolidated Summary Financial Data............. S-5
Capitalization.................................. S-6
Description of Notes............................ S-7
Taxation........................................ S-10
Underwriting.................................... S-11
Legal Matters................................... S-11
PROSPECTUS
Available Information........................... 2
Incorporation of Certain Documents by
Reference..................................... 2
Sovereign Bancorp, Inc. ........................ 3
Supervision and Regulation...................... 3
Ratio of Earnings to Fixed Charges.............. 8
Use of Proceeds................................. 8
Description of Debt Securities.................. 9
Description of Capital Securities............... 21
Description of Preferred Shares................. 22
Description of Capital Stock.................... 25
Description of Securities Warrants.............. 28
Certain Tax Considerations...................... 31
Plan of Distribution............................ 31
Legal Matters................................... 32
Experts......................................... 32
</TABLE>
$50,000,000
[ INSERT LOGO ]
% SENIOR NOTES
DUE JULY 1, 2000
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
JUNE , 1995
<PAGE>
